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January 11-14, 2016; San Francisco, CA; Full Report – Draft

Executive Highlights

In this final report, we have compiled our full coverage from the 34th Annual JP Morgan Healthcare Conference, held in San Francisco, CA from January 11-14, 2016. The schedule was as jam-packed as the halls of the Westin St. Francis.

In diabetes drugs, Intarcia CEO Mr. Kurt Graves delivered a compelling presentation in which he shared that the CVOT for ITCA 650 (implantable exenatide mini-pump) reached its required number of events last year and will report results in 2Q16. New MannKind CEO Mr. Matthew Pfeffer emphasized that the company is “not going quietly into the night,” expressing confidence in Afrezza’s future and sharing more specifics on MannKind’s revised strategies for the product. We also heard a number of timeline updates from Lilly and Sanofi and optimism from AstraZeneca on saxa/dapa’s future and the potential for cardioprotection with Farxiga (dapagliflozin).

On the technology side, Dexcom’s presentation included its customary 4Q15 revenue pre-announcement: estimated revenue was ~$129 million, a striking ~23% sequential rise from record-high 3Q15 revenue, and a 53% year-over-year gain on a very tough comparison. We saw a very comprehensive update from Bigfoot Biomedical, including a first-ever demo of the company’s automated insulin delivery system, which uses the smartphone as the user interface. The device will enter a pivotal study in 1H17 and could be preceded by 510(k) cleared devices, including a connected pen. We also learned that Medtronic may launch the MiniMed 670G hybrid closed loop system in the US and skip the 640G entirely; the 670G launch is still slated for FY17 (by April 31, 2017).

Obesity companies had a fairly small presence at this year’s JP Morgan. The biggest news was the presentation of positive data from Orexigen’s open-label Ignite Study demonstrating significant weight loss with Contrave (naltrexone/bupropion extended-release) in a real-world setting.

Read on below for full coverage of JPM, along with highlights from concurrent conferences including Biotech Showcase and Health 2.0. This report covers a total of 38 presentations, divided into five categories: (i) Diabetes Drugs; (ii) Diabetes Technology; (iii) Obesity; (iv) Health Policy/Big Picture; and (v) Keynote Addresses/Panel Discussions. Titles highlighted in yellow represent presentations that we found particularly notable.

Detailed Discussion and Commentary

I. Diabetes Drugs

Amgen

Bob Bradway (CEO, Amgen, Thousand Oaks, CA)

Amgen’s presentation highlighted the upcoming CV outcomes data for Repatha (evolocumab), now expected in 2H16, and the drug’s strong reimbursement position. In his review of key recent and upcoming launches, CEO Mr. Bob Bradway characterized Repatha as a very important growth opportunity for Amgen in the next few years. He noted that the ongoing FOURIER CVOT for the product is expected to complete by mid-2016, so results will be available within the year. This is an earlier timeline than we might have expected, as investigator Dr. Marc Sabatine (Brigham and Women’s Hospital, Boston, MA) indicated at last year’s ACC that results were expected “no later than 2017,” and the estimated completion date on ClinicalTrials.gov is February 2018. Amgen management appeared quite optimistic about the results during Q&A. Our outlook is fairly positive as well given the impressive LDL reductions seen with Repatha in phase 3 and the clear link between LDL lowering and CV outcomes in past trials. Mr. Bradway also noted that data from an intravascular ultrasound (IVUS) study of Repatha is also expected in 2H16 and suggested that it could be quite compelling to cardiologists by providing visual evidence of regression of atherosclerosis. On the payer front, Mr. Bradway shared that Repatha will have access to 81% of the US commercial market in 2016 – no doubt helped by a favorable position on both the Express Scripts and CVS Health formularies. This strong start suggests that US payers remain willing to cover expensive new therapies that are significantly differentiated even in a more cost-conscious environment (albeit with restrictions on patient eligibility – this will be especially important to unpack in diabetes). It will be interesting to see whether this is also true for more historically cost-conscious European payers as reimbursement discussions proceed there.

Questions and Answers

Q: You have two important clinical readouts for Repatha coming up. Can you put the significance of the IVUS study into perspective given its close proximity to the CVOT?

A: We see the IVUS data as complementary to the outcomes data. Obviously if we had to choose, we would choose the outcomes data, but the IVUS data is extremely compelling to cardiologists. A picture’s worth a thousand words. When you can actually see regression of the underlying atherosclerosis, that’s extremely impactful to physicians. That can potentially be represented in the label and eventually promoted. It does appear in the statin labels. It’s a potential differentiating factor for us as we’re the only company doing this kind of trial. The data will demonstrate the underlying mechanism by which the outcomes benefit is generated.

Q: How does it fit into your discussions with payers?

A: People are aware of the outcomes study and this trial. I believe the utilization management criteria will be changed once we have both sets of data.

Q: Express Scripts talked about their program for Repatha and how they aim to guarantee access to the right patients. Can you provide more color on the nature of that agreement?

A: We don’t disclose details, but clearly the way our team developed Repatha gave a clear, definitive view of what the drug does: intensive, predictable LDL lowering. Identifying a high-risk cardiovascular patient with atherosclerosis is pretty simple. We’re working to identify what the prior authorization process is, how to identify patients, but you’re looking at almost a guarantee of LDL lowering.

Q: Can you comment on the potential for neurotoxicity with PCSK9 inhibitors?

A: The recent source of all that was an anonymous online post – there may be a less valuable source of information on the planet but I’m not familiar with it. It’s complete hocus pocus. That said, this is a novel mechanism being investigated in humans for the first time. We don’t believe the drugs have meaningful penetration through the blood-brain barrier, so these are mostly theoretical concerns. The issue is that cholesterol is an important constituent of cell membranes, and you can hypothesize endless adverse events if the physiology is starved of cholesterol. That ignores the fact that cholesterol is manufactured in the body at will and these therapies don’t impact that. Plus the antibodies don’t get into the CNS.

One thing you have to remember when you see extremely small imbalances in people complaining about irritability and memory is that you can’t achieve 100% blinding. Anyone can get their cholesterol checked, and patients do this in the trials, so they know they’re on a drug that dropped their cholesterol by 75%. Then they have a bias toward reporting that they woke up and felt fuzzy. It’s never the bottle of wine they drank the night before. Look at the labeling; that’s what we understand. There are very large placebo-controlled studies going on across the industry with close to 100,000 patients, so we’ll learn the safety profile. You might also ask what safety problems might arise that would offset the benefit of reducing these cardiovascular outcomes by the magnitude we’re expecting in the outcomes studies.

AstraZeneca

Pascal Soriot (CEO, AstraZeneca, Paris, France)

AZ management offered an optimistic take on the potential for cardioprotection with Farxiga (dapagliflozin) and described the SGLT-2 inhibitor class as potentially transformative. When asked during the breakout session whether AZ expected its US diabetes business to grow in the next couple of years, CEO Mr. Pascal Soriot expressed great confidence in Farxiga’s growth potential following the positive EMPA-REG OUTCOME results for Lilly/BI’s Jardiance (empagliflozin). He suggested that the SGLT-2 inhibitor class has yet to fully take off due to inertia among primary care providers but that it will eventually “transform the way diabetes is treated.” We could certainly imagine the class becoming the standard second-line treatment for type 2 diabetes, at least for high-risk patients, if the results are replicated in other studies. AZ management appeared fairly confident that the results will be replicated in DECLARE (Farxiga’s CVOT), noting that the phase 3 meta-analysis of CV outcomes for Farxiga was very similar to that for Jardiance. Management even suggested that the trial could potentially be stopped early if interim analyses in 2016 and 2017 show a significant benefit; trial completion is currently expected in 2019. We do expect that the benefit is most likely a class effect given the minimal differences between the three agents, though we would shy away from putting too much stock in the meta-analyses due to the small number of events included. AZ also highlighted DECLARE’s inclusion of a lower-risk “primary prevention” population in addition to the higher-risk patient population comparable to that in EMPA-REG OUTCOME; this should make the DECLARE results particularly informative for treatment guidelines.

AZ remains confident in a path forward for its saxagliptin/dapagliflozin (“saxa/dapa”) fixed-dose combination after speaking with the FDA. AZ had reassured investors in its 3Q15 update that the Complete Response Letter for saxa/dapa was not due to concerns about heart failure or DKA but stated that it had yet to meet with the FDA about the path forward. The company has now met with the FDA and remains confident in the product’s future; management promised more details in its 4Q15 update on February 4. On the contrary, management stated that AZ has still not received an update from the FDA on label additions for DPP-4 inhibitor Onglyza (saxagliptin) due to the SAVOR results. We would certainly expect any updates to arrive soon given that the Advisory Committee meeting on the topic took place almost nine months ago.

Questions and Answers

Q: Do you have any updates on the response to the saxa/dapa CRL?

A: In 3Q15 we communicated that we hadn’t talked to the FDA but we were confident there would be a path forward. We have now talked to the FDA and we are still confident. We’ll give more specific information in our 4Q15 update.

Q: Have you heard anything about potential label updates for Onglyza based on the SAVOR results?

A: We have no update. This is in the hands of regulators. They have all the information they need to understand the benefit/risk profile of the product and they haven’t communicated anything to us. We anticipate that they will digest the information and have an interaction with us, but they haven’t communicated anything.

Q: Do you expect your diabetes business in the US to grow for the next one or two years?

A: One product that can definitely grow is Farxiga. That should really transform the treatment of diabetes. The problem is there’s a lot of apathy in the system. Endocrinologists have changed their practice but with primary care providers it takes time. We have a class that reduces CV risk and theoretically should be adopted quickly, but it takes time for primary care providers to adopt because they’re creatures of habit. They still use a lot of SUs. It will take time, but that class will transform the way diabetes is treated.

Q: But you haven’t demonstrated a benefit yet.

A: The key question is really more when [than if]. We have done a meta-analysis of phase 3 and saw the same benefits as Lilly saw with empagliflozin. The question is how quickly we can get the data. We do have a safety study with CV outcomes, DECLARE. It enrolls 17,000 patients. 7,000 of them look like EMPA-REG OUTCOME and 10,000 are a new patient population, primary prevention. We’ll have interim analyses in 2016 and 2017 and expect final results in 2019. That timing will be driven by the primary prevention population where events accrue more slowly. We’ll see how the DSMB reacts to the interim data and if they need to come to us and say something’s happening and we can’t maintain a placebo group. If that happens at the first interim, it will be driven by the secondary prevention group. You can’t have that with primary prevention in that amount of time. It’s a hard outcome to predict when the timing will be. The upside opportunity for us is to have data on primary prevention.

Q: I thought a third member of the class didn’t replicate that. There was an initial bolus of events with canagliflozin, but didn’t it level out to just a slight advantage over time?

A: It doesn’t look like the patient population was quite the same as in EMPA-REG OUTCOME, so that’s one thing it’s confounded by. We have EMPA-REG and then we’re guided by our meta-analysis. That’s not fileable, but it’s enough to say what we think is happening and that it looks pretty similar to EMPA-REG.

Bayer

Bayer Head of Pharma Mr. Dieter Weinand shared his blockbuster expectation for Eylea (aflibercept) – a peak sales potential ≥ € 1.5 billion. Mr. Weinand offered very positive commentary on the drug, which is the company’s second-best selling pharmaceutical product by sales: €320 million (~$356 million) in 3Q15. He cited new approvals for additional indications (including diabetic retinopathy) and market share gains in Europe (22% [2013] -> 41% [2014]) and Japan (46% [2013] -> 65% [2014]) as the main factors behind the growth. Blockbuster status certainly seems within reach given the way Eylea’s most direct competitor – Novartis and Roche’s Lucentis (ranibizumab) – has trended. The results of the Protocol T comparative effectiveness study showing greater gains in visual acuity with Eylea vs. Lucentis in patients have certainly tipped the scales in Bayer’s favor and it’s clear that internal optimism at Bayer is high, as we believe it should be.

Mr. Weinand also commented briefly on the company’s mineralocorticoid receptor (MR) antagonist finerenone in diabetic nephropathy. He shared the candidate’s impressive phase 2b results and discussed the significant unmet need in diabetes. He summarized the two phase 3 trails underway – FIGARO-DKD (investigating cardioprotective effects) and FIDELIO-DKD (investigating nephroprotective effects) – characterizing the drug as a very real opportunity for pharmaceutical division expansion. Bayer figures to lose exclusivity on a number of major patents ~5-7 years down the line, and Mr. Weinand alluded to finerenone as a pipeline product with the potential to fill the void. Indeed, finerenone is the closest-to-market MR antagonist in the diabetic kidney disease competitive landscape (see our most recent landscape overview), so it’s no real surprise that Bayer expects big things out of the gate.

Bayer was silent on its (former) BGM business, noting that the divestment did not impact finances or R&D on the pharmaceutical side since the segments were essentially separate entities. As a reminder, Bayer sold its Diabetes Care business to Panasonic Healthcare Holdings for ~€1.0 billion (~$1.2 billion) last June, a transaction that recently closed.

Gilead

John Martin (CEO, Gilead, Foster City, CA)

Gilead management: “The actual opportunity for meaningful change to drug pricing in the US is quite low. It’s more of a campaign issue than an actual issue.” In a breakout session, Gilead management was adamant that the recent public and political discourse over high drug prices will not actually have a substantive impact, though the company expects the issue will garner a fair bit of attention on the 2016 campaign trail (indeed, both Secretary Hillary Clinton and Senator Bernie Sanders have already tackled the topic). Gilead also suggested that the press has been one-sided in its coverage of drug prices and emphasized that the company would focus on highlighting the value of its products to legislators in Washington. Gilead’s controversial hepatitis C drugs Sovaldi (sofosbuvir) and Harvoni (ledipasvir/sofosbuvir) offer an unprecedented opportunity for a complete cure – but at an extremely high cost ($84,000 and $94,500 for a complete course of treatment, respectively). Gilead management noted the growing evidence of the cost savings associated with curing, rather than merely treating, hepatitis C. That said, its high cost has forced payers and healthcare systems to limit access to only the sickest of the 130-150 million people with hepatitis C worldwide. Public furor over the pricing was on clear display – protesters outside of JPM 2016 displayed signs with slogans such as “Gilead = Greed” and “Don’t be Greedy! Treat the Needy!” We expect manufactures will see more of this as more inequality is evident.

The biggest diabetes-related news from Gilead’s update was a mention of its ASK-1 inhibitor GS-4997, which is in phase 2 trials for diabetic nephropathy. Management acknowledged that its anti-inflammatory portfolio, including GS-4997, has been more under the radar than its high-profile hepatitis C and HIV products. Gilead’s 3Q15 update presentation slides noted that the phase 2 trial for GS-4997 in diabetic nephropathy is fully enrolled. In addition to diabetic nephropathy, Gilead is pursuing GS-4997 both alone and in combination with its cancer drug simtuzumab for NASH. With the combination, Gilead hopes to address both the anti-inflammatory and the anti-thrombotic components of NASH. The company did not mention its cardiovascular pipeline during its prepared remarks or breakout session. We found this disappointing as we’ve been eagerly awaiting an update on whether Gilead will pursue a type 2 diabetes indication for its sodium current inhibitor Ranexa (ranolazine; approved for angina) for some time.

Intarcia

Kurt Graves (CEO, Intarcia, Boston, MA)

In a compelling and well-received presentation built (like last year’s) around the theme of disruptive innovation, Intarcia CEO Mr. Kurt Graves shared that the FREEDOM-CVO trial for ITCA 650 (implantable exenatide mini-pump) reached its required number of events late last year and will report results in 2Q16. While this is substantially earlier than the expected completion date of July 2018 listed on ClinicalTrials.gov, Mr. Graves described it as a “stretch target” but one the company had hoped to meet. The trial began in March 2013 and aimed to enroll 4,000 patients with a history of CVD. We imagine that this trial is one of the more likely GLP-1 agonist CVOTs to demonstrate cardioprotection given the inherent adherence advantage with ITCA-650, though the usual limitations of a high-risk population and a relatively short duration still apply and as the company has emphasized, the trial was not designed to show cardioprotection.

Mr. Graves also provided some insights into Intarcia’s expected marketing strategy for ITCA 650. Much of his presentation emphasized the need for a truly disruptive innovation that can reverse the trends in type 2 diabetes prevalence and non-adherence that have not budged for over a decade. He confirmed that the company plans to position ITCA 650 very early in the type 2 diabetes treatment algorithm, helped by a price comparable to that of oral drugs. Intarcia will initially target 25,000 early adopters who represent 80% of the volume for most type 2 diabetes launches, which Mr. Graves stated would require a sales force of only 500 reps. The company is also deliberately appealing to payers from the outset, both with its price point and a set of head-to-head studies against several major type 2 diabetes drug classes. Upcoming studies in addition to FREEDOM-1 vs. placebo and FREEDOM-2 vs. Merck’s Januvia (sitagliptin) include trials against an SGLT-2 inhibitor and a sulfonylurea slated to begin this year and a real-world study against Novo Nordisk’s Victoza (liraglutide) post-approval.

We also learned that Intarcia’s collaboration with Numab will involve an antibody-based SGLT-2 inhibitor. The collaboration, announced last March, is aimed at developing new antibody-based therapies for diabetes, obesity, and autoimmune diseases, but specific targets had not previously been disclosed. In this presentation, Mr. Graves shared that the companies are developing an antibody fragment approach to SGLT-2, which they hope to combine with ITCA 650. He described such a combination as potentially “completely revolutionary” given the drugs’ synergistic mechanisms and high potential for cardioprotection. Mr. Graves also confirmed that the most advanced candidate from Intarcia’s acquisition of Phoundry Pharmaceuticals could enter clinical trials in 2017. Targets encompassed by that program include glucagon and a next-generation amylin, and Mr. Graves reiterated that the (ambitious) goal is to develop a new therapy for diabetes that can produce 15-20% weight loss.

Ionis Pharmaceuticals (Formerly Isis Pharmaceuticals)

Stanley Crooke, MD, PhD (CEO, Ionis Pharmaceuticals, Carlsbad, CA)

Ionis Pharmaceuticals CEO Dr. Stanley Crooke began his presentation with a joking reference to the company’s recent name-change from Isis Pharmaceuticals. The majority of the presentation focused on the company’s phase 3 candidates, with no mention of its phase 1 and phase 2 candidates for type 2 diabetes, NASH, and obesity. However, the company did highlight its apo(a) inhibitor IONIS-APO(a)-LRx (formerly ISIS-APO(a)-LRx), newly paired with the company’s LICA platform that increases activity in the liver. As in recent earnings calls, he noted that the candidate supports the possibility of weekly, monthly, or even quarterly dosing; this should be the case with other LICA drugs as well. Dr. Crooke emphasized that high Lp(a) is a key contributor to cardiovascular disease at a level comparable to that of LDL cholesterol and triglycerides. Ionis hopes that IONIS-APO(a)-LRx can do for Lp(a) what statins did for LDL cholesterol – a lofty goal indeed! The company first hopes to bring the candidate to market for a small, rare disease population with very high Lp(a) and recurrent cardiovascular events and eventually expand the indication to include all individuals with high Lp(a) and a risk of cardiovascular disease following a secondary prevention outcomes study. This mirrors the path that PCSK9 inhibitors for LDL cholesterol-lowering are taking. If the candidate eventually achieves the broad indication the company hopes for, many patients with type 2 diabetes will likely fall into the indicated population as well.

Ixchel Pharma

Gino Cortopassi, PhD (CEO, Ixchel Pharma, Davis, CA)

Dr. Gino Cortopassi, CEO of California-based biotech company Ixchel Pharma, sat down with us to discuss the company’s novel insulin sensitizers for type 2 diabetes. Ixchel is largely focused on its candidates for orphan diseases Friedreich’s ataxia (FA) and Leber’s Hereditary Optical Neuropathy (LHON) and its corporate presentation did not mention its diabetes pipeline at all. However, CEO Dr. Gino Cortopassi gave us a special glimpse of the company’s diabetes candidates during the breakout session. The three candidates all inhibit the Shc protein and have all shown promising results in terms of increased insulin sensitivity and energy expenditure in mouse models. Of the three candidates, one is a repurposed molecule that is already FDA approved while the other two are new molecular entities. However, Dr. Cortopassi shared that the company is less focused on the repurposed molecule as it feels that larger pharmaceutical companies would be more likely to license a new molecular entity. He noted that Ixchel does not have the resources to market the candidates by itself. Ixchel is actively looking for development and commercialization partners and has had “second face-to-face discussions.” With the declining popularity of TZDs, it would be great to see more efficacious, less controversial insulin sensitizers on the market. We certainly hope Ixchel can find a partner to move these efforts forward.

J&J – Janssen

Alex Gorsky (CEO, J&J, New Brunswick, NJ)

While there was little specific discussion of diabetes in the context of J&J’s pharmaceutical business, Invokana (canagliflozin) was highlighted as one of several blockbuster successes for Janssen in recent years. Looking forward, CEO Mr. Alex Gorsky suggested that the company has “just scratched the surface” in areas of unmet need including type 2 diabetes. While he did not include any diabetes drugs in his list of promising mid- to late-stage pipeline highlights, the company has made several exciting efforts to refill its metabolic disease pipeline in the past year, including recent agreements with Hanmi and Intrexon.

Lexicon

Lonnel Coats (CEO, Lexicon, The Woodlands, TX)

Lexicon expressed strong optimism about SGLT-1/2 dual inhibitor sotagliflozin’s potential for differentiation within the type 2 diabetes market and emphasized two “anchor points” in particular. The company showcased a “beautiful chart” of blood pressure reduction data from a phase 2b trial in type 2 diabetes and suggested that these results may translate into a cardioprotective benefit in a cardiovascular outcomes trial (CVOT). Management believes that such positive results, coming on the heels of those for Lilly/BI’s Jardiance (empagliflozin) in EMPA-REG OUTCOME, would lead to earlier use of sotagliflozin (and SGLT-2 inhibitors more generally) in type 2 diabetes progression. Management also reiterated the belief that sotagliflozin’s efficacy in individuals with renal impairment will be an important differentiating factor for patients with advanced type 2 diabetes. Lexicon management has historically referenced potential cardioprotection related to sotagliflozin, though obviously nothing has been proven at this stage. Ultimately, several experts have suggested that blood pressure lowering was not the main driver of the cardioprotective benefit seen with empagliflozin; clearly, a class effect for SGLT-2 inhibitors (and presumably SGLT-1/2 dual inhibitors) cannot be assumed at this stage. Lexicon shared that it has received Sanofi’s $300 million upfront payment from its licensing agreement for sotagliflozin, a major milestone that brings Lexicon’s total cash and investments to over $500 million at the end of 2015.

Lexicon’s recent licensing agreement with Sanofi was a major focus of the presentation. Under the terms of the agreement, Lexicon will lead development of the candidate for type 1 diabetes and retains the option to co-promote it for type 1 diabetes in the US, while Sanofi will lead development and commercialization for type 2 diabetes and will lead ex-US commercialization in both type 1 and type 2 diabetes. The company noted that phase 3 trials for the compound in type 1 diabetes are “going extremely well” and confirmed that topline results are expected in the second half of 2016 (September 2016, according to ClinicalTrials.gov, though Lexicon raised the possibility of reporting even earlier than 4Q16 in the breakout session). During its own presentation on JPM Day #2, Sanofi shared that it expects to begin phase 3 trials for sotagliflozin in type 2 diabetes in 4Q16. Echoing its 3Q15 update, the company emphasized that this licensing agreement “unlocks the full potential” of sotagliflozin.

Lexicon management was adamant in the breakout session that the Sanofi partnership “will extend our capabilities,” rather than Lexicon ceding all control over the development and commercialization of sotagliflozin – that seems clear to us given the agreement that Lexicon will lead development for type 1 and will co-promote for type 1. Prior to this deal, Lexicon had planned to move forward with a solo type 1 diabetes development program due to the challenges it faced in finding a partner and funding for a joint type 1 and type 2 diabetes program.

During the breakout session, Lexicon shared that the company has a locally-acting SGLT-1 inhibitor in its early-stage pipeline. The company plans to begin moving forward development of this candidate, along with other early-stage assets. Up to this point, Lexicon has been largely focused on its two late-stage assets (sotagliflozin and telotristat etiprate for carcinoid heart disease). We’re looking forward to seeing what happens on the earlier-stage pipeline front given that it now many many more resources.

Lilly

John Lechleiter (CEO, Lilly, Indianapolis, IN)

In a breakout session, Lilly shared that it expects a US regulatory decision in 2Q16 or 3Q16 on a label change to reflect the cardioprotective benefit for Jardiance (empagliflozin). The 2Q16 timeline is based on a six-month priority review process. EMPA-REG OUTCOME data for Jardiance has also been submitted in the EU and EU submission for Synjardy is expected this quarter.In addition, Lilly expressed strong confidence that the EMPA-REG OUTCOME data will catalyze a change to Jardiance’s indication, rather than just resulting in a change to the efficacy data in the label. As mentioned in its recent 2016 financial guidance call, Lilly believes that the updated label will be the first of two significant inflection points in Jardiance sales; the second will be updated treatment guidelines that position Jardiance more favorably. The company hopes that Jardiance will be positioned as an option along the entire continuum of care for type 2 diabetes, from the start of therapy to patients already on insulin at high cardiovascular risk. Despite the company’s high hopes, however, the recently-updated 2016 AACE/ACE guidelines offered a conservative take on the EMPA-REG OUTCOME results. The new algorithm made no changes to prescribing recommendations even for the specific high-risk population group tested. The algorithm does mention a “possible benefit” of SGLT-2 inhibitors on atherosclerotic cardiovascular disease (ASCVD) but designates the class as neutral for heart failure. In other updates, Lilly shared that it plans to initiate a phase 3 program for Adocia-partnered BioChaperone Lispro in 2016, shared that it is gaining market share in every diabetes drug category in the US, Europe, and Japan, and offered commentary on the current outcry over drug pricing – see our detailed report below for more.

Lilly shared that it plans to initiate a phase 3 program for Adocia-partnered ultra-rapid-acting insulin BioChaperone Lispro in 2016. Lilly management previously characterized the clinical development program for the candidate as “progressing extremely well” in its 3Q15 update. This presentation also reiterated a series of key events for 2016, first shared in the company’s 2016 Financial Guidance update. Diabetes-related events included phase 3 data from the MARLINA study of Tradjenta (linagliptin) in patients with renal impairment, US regulatory submission of empagliflozin/metformin XR, and regulatory actions on the label additions for Jardiance CV outcomes data, EU submission of Glyxambi, and US submission of linagliptin/metformin XR.

Lilly proudly highlighted its “most complete portfolio of diabetes products in the industry” and shared that the company is gaining market share in every diabetes drug category in the US, Europe, and Japan. Lilly spotlighted its particularly prolific series of diabetes drug launches in the last 18 months, including Jardiance (empagliflozin), Trulicity (dulaglutide), Glyxambi (empagliflozin/linagliptin), Humalog U200 KwikPen, Synjardy (empagliflozin/metformin), and Basaglar (biosimilar insulin glargine). We’ve been particularly impressed by Trulicity’s ramp up in sales this year (reaching $74 million in 3Q15), and its patient-friendly ease-of-use has contributed to growth in the GLP-1 agonist class as a whole. Lilly management also noted today and previously during its financial guidance update that the new-to-brand (NBRx) share for Jardiance is now 25%, up from 15% before the release of the EMPA-REG OUTCOME topline results.

Lilly management also offered thoughts on the public and political outcry over drug pricing, suggesting that the pharmaceutical free market is essentially sound and will not likely change. Echoing sentiments from the company’s 3Q15 update (and Gilead’s breakout session from JPM Day #1), management indicated that the pharmaceutical industry needs to do a better job with its messaging and put the focus back on new breakthroughs and cures while reminding the public that the driver of healthcare costs is chronic diseases rather than prescription drug costs. This is certainly true on a systemic level, though prescription drug costs can pose significant burdens for individuals. In addition, management pointed a finger at payers, asking why “commercial insurance puts such a disproportionate burden of consumer spending on drugs.” Lilly emphasized that it is “on the side of the patient” and pointed to its prescription assistance programs as evidence of its commitment to improving access to its products. On the other hand, Dr. Irl Hirsch has previously railed against prescription assistance programs as creating pent-up demand for products that weaken payers’ position in formulary access negotiations.

While acknowledging that the political rhetoric around drug pricing will be particularly intense in an election year, management stressed the importance of not overreacting and underscored the importance of keeping the “right policies” in place at the legislative level. Ultimately, Lilly doesn’t believe that the fundamental free market principles underlying the drug industry will change, but noted that the industry should not take that for granted either. To that end, Lilly concluded with the importance of “making sure these things are understood by thought-leaders.” We assume this means the pharmaceutical industry lobby will be particularly strong in Washington this coming election cycle. For more on the complex issue of drug pricing, see our thoughts from our 2015 + 2016 Reflections piece.

MannKind

Matthew Pfeffer (CEO, MannKind, Valencia, CA)

Newly minted MannKind CEO Mr. Matthew Pfeffer expressed strong confidence in Afrezza’s future and shared more specifics on MannKind’s revised pricing, marketing, and education strategies for the product. He reassured investors that the uncertainty over the company’s leadership is now over and emphasized that the withdrawal of Duane DeSisto’s appointment as CEO was completely unrelated to last week’s termination of the Sanofi partnership. He stated that MannKind’s immediate goal is to increase volume for Afrezza, in large part through a price cut (down to parity with injected insulin) that will hopefully lead to stronger reimbursement. He also suggested that much more education will be needed to communicate Afrezza’s benefits to patients and providers and convince new users to stick with the product. MannKind plans to accomplish this through social media (including its newly launched Twitter account) and through new initiatives like the Afrezza Advocate Council and a set of Diabetes Care Centers with Afrezza as a featured therapy – see below for more on these. Mr. Pfeffer reiterated that MannKind’s expected ~$59-$60 million in year-end cash could potentially last longer than 2H16 as originally predicted, as the company is taking steps to reduce its burn rate. He noted that MannKind is in discussions with potential partners to replace Sanofi but stressed that the company is prepared to go it alone if necessary. Further down the road, Mr. Pfeffer noted that MannKind is exploring international opportunities for Afrezza and moving ahead with other candidates that use the Technosphere platform.

MannKind plans to lower Afrezza’s price in the hopes of increasing volume and achieving stronger reimbursement. The company alluded to a new pricing strategy in a call following the termination announcement last week but offered a more explicit critique here of Sanofi’s decision to price the product at a premium to injected insulin. Mr. Pfeffer suggested that poor reimbursement has been the biggest obstacle to Afrezza’s launch and that a new price point should help the product achieve at least broad Tier 3 access. Our impression at the time of the launch was that Afrezza’s wholesale acquisition cost was fairly comparable to rapid-acting analog insulins, but perhaps this did not remain the case. Notably, Mr. Pfeffer suggested that spirometry testing has not been a major barrier to uptake since the earliest stages of the launch.

MannKind plans to pursue a “21st century” sales strategy with a small sales force and a large emphasis on social media, patient advocacy, and education. A smaller sales force (management did not provide an exact number) is partly a matter of necessity for MannKind given its limited cash resources, but Mr. Pfeffer argued that it also represents a shift away from the traditional “rep to doctor” launch paradigm that Sanofi favored.

Mr. Pfeffer highlighted two initiatives in the advocacy/education arena to be launched this year. One is the Afrezza Advocate Council, which is still in the “embryonic stage” but will eventually bring together experienced Afrezza users, doctors, public figures, and business professionals to disseminate information about the product. The other is an agreement to highlight Afrezza as a featured therapy in a set of Diabetes Care Centers: ancillary services in urgent care centers staffed primarily by non-physician HCPs. The first pilot center will launch in New Jersey in 1Q16, and the plan is to scale the program to multiple locations in existing centers this year and expand nationwide in 2017-2018.

“I have yet to find an example of someone using a CGM and Afrezza who didn’t get the best results they’ve ever gotten.” During the breakout session, Mr. Pfeffer confirmed that lack of retention of new patients has been one of the major challenges for Afrezza – we had previously heard that nearly two-thirds of users do not fill a second prescription. He suggested that this is likely due to incorrect or overly conservative titration, as well as encouragement from physicians to go back to injected insulin if there is no major A1c improvement after the first experience with Afrezza. This issue is one reason why MannKind believes more robust patient and provider education will be key to a successful turnaround. However, Mr. Pfeffer stressed that Afrezza continues to receive rave reviews from some patients, particularly those on CGM who are better able to perform real-time titration and see the minute-to-minute effects on blood glucose.

The company continues to make progress on the FDA-mandated post-marketing studies for Afrezza. Data from the two PK/PD studies (investigating dose-response and within-subject variability) will be presented at ADA in June. The company has recently initiated a pediatric study, which Mr. Pfeffer indicated should be fairly low-cost. MannKind is in negotiations with the FDA over the design of the more expensive long-term lung safety trial, but Mr. Pfeffer suggested that study should not generate any significant costs until late 2017.

The next focus areas in MannKind’s pipeline do not relate to diabetes or obesity. The three upcoming candidates highlighted in the presentation were drugs for pulmonary arterial hypertension, chemotherapy-induced nausea/vomiting, and anaphylaxis, though oxyntomodulin for obesity was included on a longer list of possible future candidates that could be delivered via the Technosphere platform. These priorities are consistent with those outlined in MannKind’s 4Q14 update last year.

Questions and Answers

Q: I appreciate your enthusiasm and confidence, but the obvious counter is that one of the leading diabetes companies in the world wasn’t able to do this. How can investors have confidence that you can turn this around?

A: Clearly we thought for a long time that the pricing strategy needed to be addressed. It was a problem of reimbursement. If you compare our projected insurance coverage with where we ended up, it’s clearly different. We didn’t expect a lot of Tier 2 but we ended up with lots of companies not covering it or covering it with big-time restrictions. Even for those who were very favorable to it, the key thing was it’s amazing anyone sticks around and goes through all the hoops to get it. There were restrictions saying you had to try everything else first or get your doctor to fill out a form justifying the need for it. It became problematic and difficult to overcome.

We’ve also been seeing what the patterns are and why some patients are having great luck and others are not continuing. We’ve had a decent number of dropouts, more than we thought. We’ve said many times that once patients tried it, they would love it. That was because the patients I heard from loved it. When you’re developing a drug, you hear from the people who love it and the people who hate it. You don’t hear from the people in the middle. Later we heard we were seeing dropouts, people who were not getting the results they thought they would because they weren’t using it correctly or were being too conservative. The successful people went through the titration process and got where they needed to be. People would try it once or for a week or two and then come back with an A1c that’s not better or even worse, and their doctor would tell them to go back to injections.

One more startling thing is that I have yet to find an example of someone using CGM and Afrezza who didn’t get the best results they’ve ever gotten. They can see what’s happening and do the titration quickly. I think that’s the thing to focus on. There are stories that validate the concept. Sanofi recently did an advisory board about Afrezza and they told a story about an endocrinologist in the audience who had diabetes, tried Afrezza literally once and didn’t think he got a benefit. He had a CGM but said it didn’t bring him down as much as his usual insulin. He was at this panel and became excited again, and he walked out and phoned in a prescription from the hall and then wrote an article about his experience. He said now I get it: my sugar is too high, I take one dose and see two down arrows on my CGM. Normally that would scare me because it means I’m about to crash but that doesn’t happen.

That was very enlightening to hear stories like that. We need to do a better job educating patients and doctors. The things I talked about will help. We need to turn the equation around and get the successes we think are possible. Keep in mind that Sanofi devised its Afrezza strategy in the context of its entire portfolio, which appears to have influenced some decisions. That’s a constraint we don’t have. We’re much more able to come up with a broader range of patient populations to target that Sanofi was likely unwilling or unable to address.

Q: Price wasn’t the only impediment. What about the spirometry testing?

A: Sanofi was tracking that closely and gave us a lot of data that we can use. By the way, I’m not planning to throw them under the bus; I think they did the best they could with what was allowed in the US, though they made some errors. The spirometry was an issue in the early days. In the later days they determined it was no longer a big deal. It was reimbursement. They also tracked new patients but needed to also retain those patients. They did some things that were good, and we have other ideas like the Diabetes Care Centers. But spirometry testing is not a major impediment.

Q: How big a sales force will you employ to sell this? How does it compare to Sanofi’s?

A: I’m not allowed to say what they did. I can’t answer the first part either because the plans are still under development. We’re working on lots of things and we don’t claim to know everything. We’ve employed consultants to help us. We have an organization whose job it is to evaluate pricing and reimbursement strategies. We’re not going to bet the company on our assumption. We have another organization helping with sales. We’re trying initially to emphasize more modern sales strategies. We can never fully move away from a sales force but it won’t be a huge one.

Sanofi took the tack of a classic 1990s drug launch: sales rep to doctor and the doctor writes a script. The environment is changing, and Afrezza is an innovative new way of treating diabetes. Maybe the rep to doctor paradigm is not the way to go. We can do more through social media, patient advocacy, and diabetes education where we can help drive sales and utilization without the huge cost of a sales force. Over the past ten years, the ability of sales reps to generate scripts has clearly been hindered by regulations like the Sunshine Act and other impediments. We can’t afford a large sales force and even if we could, I don’t think we would do it. We’re looking to 21st century ways of addressing this.

Q: How does the burn rate not accelerate when you’re adding parts like a sales force to your business?

A: I’m not going to commit to a particular sales force strategy. The immediate emphasis will be on innovative things that don’t cost us much while we get things nailed down. It’s very likely we will end up with a smaller, targeted sales force. That’s coupled with a broader strategy to keep the burn rate down. If all goes as I’ve sketched it out, to the extent functions are added, they’ll be offset by reductions in other areas.

Q: Will the FDA be on your back about social media promotion? Have you considered a contract sales organization?

A: I can’t be specific; I hope we can be in the days ahead. The things we’re tweeting, the FDA won’t care about. We tweeted we’ll be at this presentation to get people listening. It’ll be corporate news. The recent days have been very awkward. There have been lots of things going on – I’ll use the CEO uncertainty as an example – where people call me and I can’t answer my phone. An obvious question after Sanofi terminated the partnership was where’s the CEO? We were in the midst of uncertainty and we couldn’t answer that. We’ve gotten lots of heat for not being transparent and we’re trying to turn that round. We’re overcompensating in some ways. We’re not announcing things prematurely, but once we know you can count on us being forthcoming.

Q: Can you remind us of the logistics with the Deerfield arrangement?

A: We owe them $80 million over what was originally six years. The first payment of $5 million is due this summer. There’s not another one for another year, and it goes in chunks thereafter. So there’s $5 million near term and then it’s quite a ways off. It’s not a big issue at the moment. I think we have a good relationship with them. I got a phone call this week and have a meeting with them next week.

Q: What is the market value of the facility in California that’s for sale?

A: It’s listed and people know about it. I think we listed it at $20-$25 million. What we’ll get we don’t know. We have gotten some offers – you always get immediate lowball offers, but we didn’t accept them because we’re not desperate. I hope we can realize some cash there. It’s more important than it was a short time ago. I remain as confident as I can possibly be. None of these things happen overnight. We need time to show progress and changes. Incremental cash gives us more breathing room.

Q: How long a leash does Afrezza have? Sanofi gave it a year. If at a certain time you’re not seeing traction, do you re-shift the strategy and focus on the pipeline?

A: The answer has to be yes, but I want to emphasize that we think Afrezza is amazing, and I don’t think it will ever go away. I will make it my personal mission to make sure patients can continue to get it, even if we needed to sell it to someone. But I don’t see us going down that path.

Q: Do you have any ideas about how new partnerships could be structured?

A: We were obviously talking to other parties when we signed the Sanofi deal, so it’s only natural to go back to maybe our second choice. That will happen; we’ve already initiated the process in a high-level way with our former advisors. There will be other avenues as well. That’s about as specific as I can get.

Q: Have you considered groups like Royalty Pharma or more financial groups that would pay a royalty?

A: Yes. I’m not sure that’s optimal. I think we have other options that might be better. But any prudent company would look at those.

Q: Is there a timeline when you have to start or complete the long-term lung safety study? What do you expect the cost to be?

A: There is a timeline to have it done but not for when we begin. We just need to ensure that when we start, we can finish in the allotted time. The cost is in flux due to negotiations with the FDA about trial design. We think using an innovative trial design can keep the cost manageable. We’re probably not looking at significant costs hitting the books until late 2017. By then we’ll hopefully have lots of plans we’re implementing.

Remember that four studies were required, including a pediatric study and two PK/PD studies. The PK/PD studies are Sanofi studies but we’ll have access to the data. It takes awhile for the final report to be issued, but we will be presenting data at ADA in June. If anyone’s worried we weren’t successful, that’s not the case. We have the pediatric study that we recently started, and that’s relatively low cost. That’ll be in our hands.

Q: Does the cash runway include the restricted cash in the Deerfield loan?

A: The simple answer is yes. People seem to assume we can’t spend that $25 million. If you think about the total cash resources, that’s true. In terms of absolute cash, it’s not. The way it was negotiated, as long as we’re willing to not draw on the note from Al Mann, we can spend our last dollar in the bank.

Q: Would you be able to raise additional capital in Israel?

A: We can raise additional capital anywhere if we’re willing. We aren’t terribly anxious to do that. We’ve seen where the stock is. It’s surprising how many people are willing to buy our stock at this price. I think we need to make solid progress and reassure the market that we have a plan to get out of the situation we’re in before we consider that. We have ways to extend how much time we have.

Merck

Ken Frazier (CEO, Merck, Kenilworth, NJ)

Merck CEO Mr. Ken Frazier repeatedly referred to diabetes as a key growth area for the company, most notably announcing anticipated filings for Pfizer-partnered SGLT-2 inhibitor ertugliflozin in 2016. Throughout the presentation, Mr. Frazier highlighted Merck’s commitment to diabetes, emphasizing the market opportunity of the disease’s growing prevalence. He specifically pointed to DPP-4 inhibitor Januvia’s (sitagliptin) consistent strong growth, stressing that Merck will “continue to invest in this important product and defend its market share.” Notably, in discussing the company’s “key potential catalysts for 2016,” Mr. Frazier noted the completion of ertugliflozin’s phase 3 studies (which we learned in the 3Q15 update) and shared that Merck anticipates filings in 2016 for the candidate both as a monotherapy as well as in fixed-dose combinations with Januvia and metformin. We especially see a DPP-4 inhibitor/SGLT-2 inhibitor combination of great value in improving adherence and it will be interesting to see whether such a patient population will grow if guidelines change after more CVOT results. In addition, Mr. Frazier noted that Januvia’s label may be updated with the TECOS results in 2016 – we believe the spot-on neutrality of these results have at least somewhat contributed to the product’s growth over recent quarters and a label update will likely further support this trend. While diabetes received little attention during the breakout session, please see below for one response of management’s confidence in the Januvia franchise and ertugliflozin moving forward.

Questions and Answers

Q: With the recent SGLT-2 cardiovascular outcomes data, what are your thoughts about Januvia and its growth prospects?

A: If you look at Januvia, it has continued to have strong growth throughout 2015 and into 2016. If you look at all the prescription data, Januvia continues to do well. Now there have been some share changes within the SGLT-2 inhibitor class. But we have not seen an impact on the DPP-4 inhibitor class. This is true for the US and also outside the US. As we start to think about the future, we believe Januvia’s safety and efficacy profile and physicians’ comfort with it will help maintain use of the product. If over time, guidelines and labels change, we’ll monitor. But it’s also important to remember that we have an SGLT-2 inhibitor in development and we’re thinking about combining it. Since the average patient is taking 2.4 medications, a combination with an SGLT-2 inhibitor and Januvia would be the best and obvious choice. And we’ll see how more CVOT results of SGLT-2 inhibitors go.

Midatech

Jim Phillips, MB, ChB (CEO, Midatech, Oxfordshire, UK)

Midatech Pharma CEO Dr. Jim Phillips said that results are expected this quarter (1Q16) from a phase 2 trial testing Midatech’s MidaForm buccal insulin (single-use, dissolvable strip placed on the interior of the cheek). The company is focused on oncology and plans to license the insulin (“we are not a diabetes company”), presumably to one of the insulin manufacturers. Dr. Phillips said results that replicate phase 1 would be a home run, showing 25% of the bioavailability of injection, with 50% of the pharmacodynamic effect. Apparently, insulin companies are looking for >10% bioavailability. As we noted when the trial began in summer 2015, MidaForm insulin is a joint venture with MonoSol Rx. Dr. Phillips also disclosed plans to move a type 1 diabetes vaccine into phase 1 this year. The slide detailed the approach, which was not elaborated on: pancreatic beta cell T cell epitope (proinsulin C19-A3) combined with the tolerogenic cytokine IL-10 and targeted to antigen presenting cells via gold nanoparticles and delivery into the very superficial layers of the skin using microneedles. We look forward to following this company more closely, as they listed on the NASDAQ in December. Midatech has 105 employees, was founded in 2001 in the UK, and has four commercial products in oncology.

Novartis

Joseph Jimenez (CEO, Novartis, Basel, Switzerland)

Novartis CEO Mr. Joseph Jimenez shared that the full details of a “turnaround plan” for Alcon, the division partnered with Google, will be announced during the company’s 4Q15 call later this month. As a reminder, we learned from Novartis’ 3Q15 update that the company is planning to implement a growth acceleration plan as a response to the division’s slow growth. Mr. Jimenez labeled Alcon’s recent performance as an area where Novartis fell short, but highlighted that the division has potential as demographic trends support eye care as a significant growth area. Details around the “turnaround plan” remained mostly undisclosed, although Mr. Jimenez suggested during the breakout session that recognition of the differences in Alcon’s pharma and device work will be a key component of the plan. In that vein, while he briefly and ambiguously pointed to contact lens as an example of Alcon’s device work, management provided no mention of the company’s collaboration with Google on diabetes – see our 2Q15 report for more details on the latest we’ve heard on this front. Otherwise, Novartis’ DPP-4 inhibitor Galvus (vildagliptin) received no attention during the company’s presentation or Q&A, similar to recent financial updates, as we do not foresee the company devoting additional resources to the drug. Thus with regard to diabetes, while we have not heard any specific mention of the Google smart contact lens collaboration since the 4Q14 call, we will be listening most closely for any potential updates in the proposed Alcon growth acceleration plan on January 27. Please see below for a transcript of the Q&A on this.

Questions and Answers

Q: From your presentation, it sounds like with Alcon, you are not planning on selling any part of it?

A: Alcon is a good business because of basic trends. If you look at the current healthcare environment, it’s good and the leading position looks good. We need to jumpstart innovation so you’ll see a plan unveiled on January 27 and that’ll show that this is our plan for a best shot at turning the business. We believe we can do that. It deserves a shot and we think we can turn it and make it a business.

Q: Regarding Alcon, are we seeing a lengthening of cycle from an innovation standpoint?

A: I think it’s important to remember that Alcon is two business. They’re two very different businesses: devices and pharma. One of the insights that we’ve pulled from our analysis is that these are two very different models. To be successful in pharma innovation, it requires a different investment, skillset, and different elements compared to medical devices such as contact lenses and the surgical business. The latter can be much more rapid in innovation. There are R&D people in operating rooms with surgeons. It’s about identifying incremental changes to the equipment and the product that can improve outcomes for the surgeon. It’s a very different process and what you’re going to see is recognition of that in the plan.

Pfizer/Allergan

Brent Saunders (CEO, Allergan, Dublin, Ireland)

In a combined Pfizer/Allergan panel discussion, Allergan management expressed enthusiasm for Pfizer’s SGLT-2 inhibitor ertugliflozin and PCSK9 inhibitor bococizumab. The two companies’ management discussed topics surrounding their recent merger, with relatively high-level commentary on synergy targets, R&D approaches, and more. Most notably, when asked about specific areas of excitement in each other’s pipelines, Allergan management briefly pointed to Pfizer’s Merck-partnered SGLT-2 inhibitor ertugliflozin – as a reminder, we learned yesterday from Merck that filings for the candidate are anticipated in 2016. Management also commented that Pfizer’s PCSK9 inhibitor bococizumab will be promising, as there is “really intriguing work” going on that may “point PCSK9 inhibitors in a different direction compared to competitors.” We heard similar commentary from Pfizer during its 3Q15 update of the potential behind bococizumab’s different mechanism of action. While it will certainly be interesting to see how the phase 3 clinical data compare, we would expect payer coverage for this class to be the biggest differentiator. For more on this pipeline and its latest, please see our coverage of Pfizer’s 3Q15 update.

Regeneron

Leonard Schleifer, MD, PhD (CEO, Regeneron, New York, NY)

Regeneron CEO Mr. Leonard Schleifer provided key updates on Sanofi-partnered PCSK9 inhibitor Praluent’s (alirocumab) rollout. In particular, he focused on the ongoing payer negotiations for formulary access for Praluent, calling them a “struggle” but noting that ~150 million individuals now have access to Praluent. Like Sanofi in its JPM presentation, Regeneron highlighted the recently negotiated exclusive access to UnitedHealthcare’s formulary. Praluent and Amgen’s PCSK9 inhibitor Repatha (evolocumab) have parity access to Express Scripts and Prime Therapeutics. Repatha recently won exclusive access to CVS Health’s formulary and Amgen noted in its own JPM presentation that “81% of the commercial market” has access to Repatha. In addition, Mr. Schleifer shared that another 47 million lives are under negotiation, all coverage decisions will be made by mid-2016, and Medicare coverage decisions are expected by April 2016. Mr. Schleifer also provided an update on Praluent’s ongoing global launch: the drug is currently available in Germany, the UK, and some Nordic countries and is expected to launch in Italy, France, Spain, Canada, and Japan in 2016. Price negotiations are ongoing in many EU countries. Finally, Mr. Schleifer noted that the ODYSSEY cardiovascular outcomes trial (CVOT) is fully enrolled with a 50% interim analysis expected in 2016.

Mr. Schleifer suggested that while Praluent’s ramp-up may be slower based on the asymptomatic nature of high LDL cholesterol, the lifelong need to stay on Praluent will compound to high sales over time. He contrasted Praluent to Eylea (aflibercept) for diabetic retinopathy, noting that demand rose quickly for the latter product because it treats the very evident symptoms of blindness. He also suggested that some patients and providers will wait for the CVOT data before initiating broad Praluent uptake.

Mr. Schleifer expressed high hopes for Regeneron’s Bayer-partnered Eylea (aflibercept) for diabetic retinopathy (DR) with diabetic macular edema (DME). He shared that Eylea sales reached $2.68 billion in the US in 2015 and global sales reached over $4 billion. Bayer also offered very positive commentary on the product at its own JPM 2016 presentation. Eylea’s prospects seem especially bright in light of the results of the Protocol T comparative effectiveness study showing greater gains with Eylea vs. competitor Lucentis (ranibizumab). Looking to the future, Mr. Schleifer highlighted the initiation of a phase 3 study for Eylea in general diabetic retinopathy as a major expected milestone for 2016.

Resverlogix

Donald McCaffrey (CEO, Resverlogix, Calgary, Alberta, Canada)

Resverlogix provided updates on its clinical development plans for its BET bromodomain inhibitor apabetalone (RVX-208), including a more fleshed-out timeline for its phase 3 BETonMACE trial and discussion of potential orphan disease indications. The BETonMACE trial (n=2,400) began enrolling patients in November; management expects the trial to be fully enrolled by 1Q17 at the latest but is hopeful that will occur even earlier. Based on this timeline, dosing will be complete in 3Q18 and primary MACE results will be available in 4Q18 (the estimated completion date is October 2018 according to ClinicalTrials.gov). A previous small post-hoc analysis of two pooled phase 2b trials (n=499) for RVX-208 found a 55% risk reduction for MACE overall (p=0.02) and a 77% reduction (p=0.01) in a subset of patients with type 2 diabetes – BETonMACE hopes to replicate this finding in a dedicated trial in a larger population. While Resverlogix was clear that its ultimate goal is a broad indication in high-risk patients with type 2 diabetes, the company will first pursue several orphan disease indications for the compound. The first clinical trial in an orphan disease (Paroxysmal Nocturnal Hemoglobinuria [PNH]) is expected to complete in 2Q16. Additional trials in other disease areas will be conducted on an ongoing basis through at least 2017. Notably, Resverlogix emphasized that chronic kidney disease is one orphan disease indication that it is very interested in pursuing – we are glad to hear this given the significant unmet need in this area. Management explained that the candidate could be approved relatively quickly for these orphan disease indications and that a higher initial price would allow the company to increase capital before lowering the price once a broader cardiovascular indication is approved. We expect this approach of first pursuing specialty indications before targeting broader populations to become increasingly common if the current regulatory and financial incentives remain in place. However, the recent public frustration over high drug prices and an increasing focus by payers on cost control may mean that such high price points for specialty drugs are not sustainable in the long term.

Resverlogix CEO Mr. Donald McCaffrey emphasized the importance of payer groups in the company’s clinical development strategy. He noted that Resverlogix specifically chose to conduct BETonMACE in a high-risk population with type 2 diabetes because this group is very costly for payers. He emphasized that Resverlogix’s strategy is to underscore the potential payer group impact of its products and pointed to the recent controversies over high-cost PCKS9 inhibitors and hepatitis C drugs as evidence of growing payer influence. We think it’s very astute of Resverlogix to take payers into account at such an early stage – for more on how payers are shaping access to prescription drugs, see our 2015 + 2016 Reflections.

Sanofi

Olivier Brandicourt (CEO, Sanofi, Paris, France)

Sanofi shared a slew of timeline updates for its mid- to late-stage diabetes products and expressed confidence in LixiLan’s (lixisenatide/insulin glargine) potential. Most notably, Sanofi plans to launch phase 3 programs in type 2 diabetes in 4Q16 for its newly-licensed SGLT-1/2 dual inhibitor sotagliflozin (from Lexicon) and ultra-long-acting GLP-1 agonist efpeglenatide (from Hanmi). In addition, Sanofi shared that results from the SORELLA phase 3 trial of its insulin lispro biosimilar candidate is expected in 2Q16. The company also highlighted the recent FDA submission of GLP-1 agonist/basal insulin combination LixiLan (EU submission coming in 1Q16). Management confirmed that, due to the use of a priority review voucher (PRV) for LixiLan, standalone Lyxumia (lixisenatide) and LixiLan should both receive regulatory decisions in 3Q16. During the breakout session, head of Diabetes and Cardiovascular Ms. Pascale Witz noted that Sanofi is “very satisfied” with the phase 3 LixiLan results. During a conversation with us, Zealand management suggested that Sanofi’s decision to spend its expensive (reportedly $245 million) PRV on LixiLan implies that the phase 3 results were impressive (Zealand licensed Lyxumia and LixiLan to Sanofi and has not yet seen the full results). For its part, Novo Nordisk suggested in its 3Q15 update that it expects its GLP-1 agonist/basal insulin combination Xultophy (insulin degludec/liraglutide) to have a significantly stronger clinical profile than LixiLan. Zealand management also felt that the effect of short-acting lixisenatide on post-prandial glucose excursions may be an important point of differentiation in the market. We assume that could also lead Sanofi to position LixiLan primarily as a means to intensify basal insulin, though Sanofi was fairly cagey on that topic in the breakout session. In any case, we agree with Zealand’s assessment that the use of the PRV reflects Sanofi’s strong commitment to LixiLan. Indeed, Sanofi reiterated that one of its key strategic goals within diabetes is to develop its insulin glargine franchise, including Lantus (insulin glargine), Toujeo (U300 insulin glargine), and LixiLan. Sanofi management also shared that the company will be stepping up its overall R&D expenses to comprise 15%-15.5% of its total sales.

Sanofi shared that UnitedHealthcare has decided to offer preferred access to its PCKS9 inhibitor Praluent (alirocumab). UnitedHealthcare, the third-largest pharmacy benefits manager (PBM) in the US after Express Scripts and CVS Health, will not include competitor Repatha on its formulary. Previously, Express Scripts had announced that it would include both Praluent and Repatha on its formulary while CVS Health chose to award an exclusive formulary contract to Repatha. Nonetheless, Sanofi was proud of the 150 million covered lives with access to Praluent now – we’re not sure how this number compares with the “81% of the commercial market” that has access to Repatha. In the breakout session, Sanofi management suggested that the concurrent approval timelines for Praluent and Repatha have contributed to the many exclusive formulary access deals for PCSK9 inhibitors. In addition, Sanofi shared that its CVOT for Praluent is fully enrolled and interim data will be available in the second half of 2016 (full results by the second half of 2017).

Sanofi reiterated its strong belief that dual agonists represent the next wave of innovation for both type 1 and type 2 diabetes. Management noted that Sanofi has both a GLP-1/glucagon dual agonist and a GLP-1/GIP dual agonist in phase 1. Both were highlighted in more detail in the company’s November “Meet Sanofi Management” seminar.

Sanofi was clear that its diabetes strategy moving forward is portfolio expansion. In particular, management noted that while the biosimilar insulin lispro is an aspect of its portfolio, the company is pursing a transformation with its mid- to late-stage pipeline that will allow the portfolio to evolve to include drug classes other than insulin.

Lexicon already has a phase 3 study for sotagliflozin in type 1 diabetes underway and Lexicon management emphasized in the company’s 3Q15 update that there are no plans to slow down the type 1 diabetes program. That said, the FDA has previously signaled a preference for an integrated type 1 and type 2 development program over a solo type 1 development program and may delay approval in type 1 diabetes until the data package for type 2 diabetes is complete.

Sernova

Philip Toleikis, PhD (CEO, Sernova, London, Ontario, Canada)

Sernova President and CEO Dr. Philip Toleikis provided a comprehensive update on the company’s CellPouch, including encouraging interim results from its phase 1/2 clinical trial (NCT01652911). In a presentation and a conversation with us, Dr. Toleikis shared that in the clinical study in patients with diabetes and hypoglycemia unawareness receiving an islet transplant into the CellPouch, it was reported in a small cohort of patients that the device is safe when implanted under the skin. Following transplantation, the islets within the chambers of the CellPouch were shown to be housed in a rich tissue matrix and well connected with microvessels - both requirements to maintain the heath and function of the islets. In addition, the islets were shown to be able to produce insulin, glucagon, and somatostatin and there was no evidence of inflammatory response or immune cell attack of the islets. In an independent preclinical study, it was shown that a relatively small dose of islets transplanted into the CellPouch was able to make animals insulin independent for 100 days. The islets within the device were surrounded by tissue matrix, connected to microvessels, and showed the ability to produce insulin. According to Dr. Toleikis, the next step is to secure an unlimited cell source, and Sernova is exploring various immune-protected glucose-responsive stem cell and xenogeneic options. The company has a worldwide license to a glucose-responsive stem cell-derived technology and a manufacturing agreement to produce the cells for its studies. Assuming it successfully secures a renewable cell source, Sernova’s CellPouch would be most directly competitive with ViaCyte’s VC-01, an islet cell replacement therapy comprised of encapsulated pancreatic progenitor cells – see our coverage of ViaCyte’s presentation on JPM day #1 for more. A key difference between the two technologies is that the CellPouch features a biocompatible scaffold (more on this below), which supports the encapsulated islet cells and enables blood vessel incorporation. This could prove to have a clinical advantage over ViaCyte’s macroencapsulation technology in sustaining islet cell lifespan and insulin production. ViaCyte currently has the edge in terms of time to market, as it already has a phase 1/2 trial underway with a stem cell-based approach.

As background, Sernova’s Cell Pouch is an implantable, biocompatible device containing cylindrical spaces that provide an environment for blood vessel integration with microencapsulated islet cells. The technology is approximately the size of a business card, and made of materials approved for permanent use in the body. It uses local immune protection technologies placed within the pouch, eliminating the need for immunosuppressive drugs. Cell Pouch is patented worldwide, and can also be used for sustainable delivery of other therapeutic drugs in addition to insulin. While Sernova’s Cell Pouch is currently aimed at treating patients with type 1 diabetes, Dr. Toliekis commented that it will likely be expanded to treating insulin-dependent patients with type 2 diabetes as well.

ViaCyte

Paul Laikind, PhD (CEO, ViaCyte, San Diego, CA)

At the Biotech Showcase, ViaCyte President and CEO Dr. Paul Laikind presented encouraging preliminary results from the phase 1/2 trial of the company’s VC-01 islet cell replacement therapy. He shared that 12 patients have now received the therapy (encapsulated pancreatic progenitor cells derived from embryonic stem cells) at sub-therapeutic doses and that early safety/tolerability and proof-of-concept results are promising. There have been no serious adverse events or severe hypoglycemic episodes in the trial thus far, and most of the milder adverse events have been related to the surgical procedure (e.g., pain and swelling at the implantation site). There has also been no off-target growth of the cells in unwanted locations or any evidence of immune rejection or sensitization. Beyond these safety endpoints, Dr. Laikind presented histological data demonstrating robust vascularization, cell survival, and expression of beta cell-specific markers in one of the devices when removed after 12 weeks. He acknowledged that this represents the best outcome the investigators have seen and implied that it has not been replicated in every patient. However, he stressed that the company’s goal with this first cohort is only to demonstrate that the therapy is viable in humans. As stated in the past, ViaCyte then plans to use these initial results to optimize the therapy before beginning cohort two, which will evaluate efficacy in 36 patients.

ViaCyte is also developing a cell replacement therapy aimed at very high-risk patients that does not use the encapsulation device. This therapy, PEC-Direct/VC-02, has flown under the radar relative to VC-01 and remains preclinical. It would not represent as great a leap forward as VC-01, as patients would still need to take chronic immunosuppressants after implantation. However, it would address the current shortage of cadaveric islet cells available for transplantation, and Dr. Laikind suggested that there would be a substantial market for the product among the 5-10% of patients with type 1 diabetes who are currently eligible for islet transplants. We are curious how this will compare, both in terms of efficacy and development timeline, to other stem cell-derived therapies like those being developed by Semma Therapeutics and BetaLogics, as the potential for differentiation is less clear than with VC-01.

Zealand

Britt Meelby Jensen (CEO, Zealand, Copenhagen, Denmark)

Zealand plans to prioritize an artificial pancreas indication over a multiple mini-dose pen for its stable glucagon analog ZP4207 though both may well be important to Zealand longer term. This is consistent with the relative emphasis on the two indications in Zealand’s November Capital Markets Day and 3Q15 update but is the most explicit statement we have heard of the company’s priorities. CEO Ms. Britt Meelby Jensen confirmed that the product will be ready for clinical trials in an artificial pancreas device once Zealand finds a device partner. Zealand is still evaluating the market opportunity before deciding whether and how fast to proceed with a multiple-dose pen for mild to moderate hypoglycemia. While we understand management’s caution, we think that many patients would find such a product appealing and hope the company can find a path forward – so many patients would love to rely on something other than food or glucose tabs to address their hypoglycemia. Zealand still plans to begin the next clinical trial of the single-dose rescue version of ZP4207 in 1H16 and expects results by the end of the year. Ms. Meelby Jensen also noted that Zealand will decide on the next clinical step for its glucagon/GLP-1 dual agonist ZP2929 in 1H16 and expects to complete all preclinical work in the next year. Based on comments at the Capital Markets Day, former partner BI dropped the candidate due to aberrant preclinical toxicology results that Zealand believes were related more to study design than the molecule itself. We assume there is potential for a renewed or a different partnership if the next set of preclinical data is more encouraging. As for the company’s out-licensed products, Ms. Meelby Jensen confirmed that Sanofi’s lixisenatide and LixiLan (lixisenatide/insulin glargine) should receive US regulatory decisions in 3Q15. Sanofi still plans to submit LixiLan in the EU in 1Q16 and to present full phase 3 results at a conference in 1H16; we assume ADA in June is the most likely.

II. Diabetes Technology

Abbott

Brian Yoor (CFO, Abbott, Abbott Park, IL)

Abbott CFO Mr. Brian Yoor shared enthusiasm for FreeStyle Libre along with news that the company has – at long last – completed its capacity expansion to meet global demand. This expansion has been in the works for several quarters and it’s great to hear that constraints should no longer hold marketing and sales back. Mr. Yoor noted that serious demand (“greatly exceeding expectations”) drove the shortage – echoing commentary from recent earnings calls – and we’re glad to hear that manufacturing hurdles have been overcome. Indeed, now that supply is unconstrained, we will be very curious to see if Abbott finally discloses FreeStyle Libre sales in quarterly updates this year. The expansion will clearly please many EU patients waiting to get on the system, and the wider launch this year of the LibreLink Android app (only available on an invite-basis in Sweden) should presumably accelerate uptake – once available, patients will only need to order sensors to use FreeStyle Libre. Unfortunately, Mr. Yoor was unable to comment on the timeline or plans for bringing FreeStyle Libre (consumer or pro version) to the US, though did express that the company is working hard on this front (a US launch of Pro is expected this year, per the 2Q15 submission). The attention to Libre from upper levels of management is terrific to see and stands as a clear sign the product will get the needed sales and marketing to drive adoption moving forward – ultimately, we hope that brings much better data and engagement to millions of people with diabetes. Other commentary on Diabetes Care was nearly nonexistent, though management did label the segment an “innovation-driven business” – a testament to the clear dedication to FreeStyle Libre.

As a reminder, Abbott has completed its US pivotal study for the FreeStyle Libre consumer version; the blinded Pro version was submitted to FDA in 2Q15, and we assume an approval is still on track for 2016. The company’s US pilot study of the Pro – which began recruiting type 2 participants in April (n=132) – did wrap up in August and results have not yet been posted.

BD

Vince Forlenza (CEO, BD, Franklin Lakes, NJ)

BD CEO Mr. Vince Forlenza confirmed that the company’s FlowSmart infusion set is on track to launch in the middle of fiscal year 2016 (around March/April 2016) and alluded to a robust future for the Diabetes Care business (“You can expect BD to have a bigger presence in diabetes moving forward”). The timing on the infusion set – in collaboration with exclusive commercial partner Medtronic – is in line with previous guidance, and it’s terrific to see that the company has been able to maintain this timeline given that it is six months ahead of original expectations (September 2016). We assume this refers to a worldwide launch date (in the US, Canada, and EU) though Mr. Forlenza did not specify. Aside from particulars of the launch, our biggest questions for BD concern the “stickiness” of infusion sets (Will patients migrate to FlowSmart immediately?) and whether differences between sets will be discernable to the population (Will the average patient appreciate the clinical benefit?). On the former, we assume there will be some inertia to switching infusion sets though choice of infusion set may be more patient-driven and fluid than other devices (e.g., pumps, CGM). On the set itself, FlowSmart is definitely an innovation step-up though it will be interesting to see how this translates into real-world outcomes. As a reminder, the new set will be made available for both Medtronic and non-Medtronic pumpers, though Medtronic will control distribution in both cases. Patients at other pump companies who want the set will either have to: (i) become Medtronic customers to access it; or (ii) go through a distributor, who would in turn buy it from Medtronic.

Mr. Forlenza also underscored BD’s long-term commitment to the Diabetes Care business, promising “a bigger presence in diabetes moving forward.” We found the commentary particularly striking as it came during remarks on the Medical Device segment broadly. Mr. Forlenza alluded to pipeline plans beyond the infusion set though noted that the company is holding its cards close to its chest for now. The company did open an advanced Diabetes Care headquarters in July and BD told us at the time that the small Massachusetts-based facility (100 associates) would research smaller patch delivery devices for more convenient insulin delivery. Today’s commentary gives us hope that BD’s work on patch systems is moving ahead in a more significant way. The need has never been greater, though the competition continues to rise on the simple patch delivery front: Valeritas’ V-Go (available in the US, though a postponed IPO is never a good sign), J&J’s Finesse (reportedly coming in 2016), CeQur’s PaQ (limited EU launch in 2016), and potentially Medtronic and Unilife.

Bigfoot Biomedical

Jeffrey Brewer (CEO, Bigfoot Biomedical, Milpitas, CA)

Bigfoot Biomedical CEO Jeffrey Brewer shared more product, timeline, and business model details than ever before in a lightning quick ten-minute talk and subsequent demo at Health 2.0. He at last showed the Bigfoot automated insulin delivery setup, which has only been alluded to in the past: an Asante pump body married to a custom Bigfoot durable closed-loop controller (NO screen or buttons), Bluetooth connected to a Dexcom G5 CGM, Bluetooth connected to a smartphone app that functions as the system’s user interface (“a window” to the system, as it does not house the closed-loop algorithm), and a paired Bluetooth glucose meter for CGM calibration. Mr. Brewer also shared the most specific timeline ever, with a pivotal study now pushed back to 1H17 (previously it was expected to start by the “end of 2016”), an FDA submission by the end of 2017, and a commercial launch by the end of 2018. Bigfoot is in the process of filing an IDE and plans to move into an in-clinic study in the second quarter of this year. A hotel study will follow later this year, per the FDA artificial pancreas guidance for a stepwise approach. The company might also launch interim 510(k) cleared products before the automated insulin delivery system is approved: connected insulin management system v1 (late 2016), a connected insulin pen (!) (2017), and a connected insulin management system v2 (late 2017). Funding-wise, Bigfoot has only raised $12 million to date, and Mr. Brewer believes a total of $80 million is needed to bring the companies’ planned PMA-cleared automated insulin delivery system to market. The company is currently raising an $18 million round of Series A financing. Notably, we learned that Bigfoot will pursue a monthly subscription service model for its automated insulin delivery system. Patients would need just one prescription and have one co-pay for the entire system (pump, sensors, app, BGM). This model sounds very compelling, offering patients simplicity and savings payers lots of money over the traditional DME model. After today’s talk, we remain highly impressed with the team’s approach on the product and business model fronts. While Bigfoot still has a lot to prove – clinical trial execution, regulatory approval, commercialization – a firm foundation seems to be in place. Though it will come later to market than Medtronic’s MiniMed 670G, it represents formidable competition. Much more details on the product, business, and timing fronts below!

BIGFOOT SYSTEM DESIGN

Mr. Brewer at last showed the Bigfoot automated insulin delivery setup, which has only been alluded to in the past: an Asante pump body married to a custom Bigfoot durable closed-loop controller (NO screen or buttons), Bluetooth connected to a Dexcom G5 CGM, Bluetooth connected to a smartphone app that functions as the system’s user interface (it does not house the closed-loop algorithm), and a paired Bluetooth glucose meter for CGM calibration. While some of this we assumed, the lack of any user interface tied to the Asante pump was new. Patients will only interact with the smartphone app (e.g., take a bolus, view system status), which will function as a “window” to the system and not its brains. The Bigfoot controller connected to the disposable Asante pump body will house the closed-loop algorithm, talk directly to the Dexcom G5, and receive calibrations right from the Bluetooth meter. In that sense, Bigfoot’s app will function similar to the OmniPod PDM handheld – the pump will keep running (in this case closed-loop) when the phone is out of range, though patients won’t be able to take a bolus or view system status without the phone nearby.

This closed-loop system design has a lot of other positives too: no constant user need to interact with the pump and pull it out of the pocket (daily interaction will be done on the app – very discreet!); a far better system user interface in an app with more customizability and ability to iterate; lower hardware cost (no screen or buttons) and manufacturing burden; constant cloud connection; and the ability to access other data sources (e.g., food and exercise apps).

Bigfoot’s approach to use the phone as a “window” to the system – but not the hub – is a brilliantway to leverage its capabilities for automated insulin delivery, but not rely on it completely. Relying on phone-based closed-loop algorithms for academic studies has been useful for completing studies using off-the-shelf commercial devices, but it’s harder to imagine an algorithm residing on a standard consumer phone (not stripped down) in the real world. While FDA has said it’s open to it, we imagine the mitigations would be significant.

The Bigfoot closed-loop app home screen shows the current CGM value, a future projected CGM value, and an option to take a bolus. Entering a history menu shows the common closed-loop chart, with the CGM trace on top and insulin doses on the bottom. Of course, the Bigfoot logo is prominent throughout – this company is already thinking about branding, and we like that the pair of eye feels like a helpful “watcher” in the background.

Patients will take boluses using the Bigfoot app by entering grams of carbs in ten-unit increments. The bolus calculator was very simple: “I am eating 20 g of carbs, recommended insulin dose 2 units.” It does not show a bunch of a math (e.g., insulin on board, current blood glucose), etc.

“We know where your home is, so we will tell you when to change your infusion set at home, not when you’re on your way to work.” We love this sort of personalization, which seems trivial but will be very meaningful from a hassle reduction perspective. Importantly, this level of customization and intelligence is all enabled by the sensors housed in the smartphone.

The Bigfoot automated insulin delivery system will only ask two things upon starting closed-loop for the first time: What’s your basal dose? How afraid are you of hypoglycemia? We love the second question, which will allow patients and providers to set the system’s aggressiveness. This is similar in theory – but even simpler – than the Bionic Pancreas’ ability to set a glycemic target.

Like a Tesla, the pump controller can do over-the air-firmware upgrades. This is yet another major advantage of the cloud-connected system – lots of ability to iterate and tweak! The controller will also have an encrypted chip to ensure security with the phone.

Bigfoot will also incorporate customizable text notifications, which will escalate in urgency based on the system status. For instance, a predicted hypoglycemia event that cannot be stopped by the automated system would result in a user alarm. If the person does not respond, a text could be sent to a loved one. The company is wrestling with how to optimize and customize these features, since patients will have very different preferences on this front. Alarm fatigue and information overload is a major factor in CGM attrition, so Bigfoot will have to be very thoughtful about this aspect of the system, particularly for those not accustomed to using technology.

Mr. Brewer also shared potential interim 510(k) cleared Bigfoot products before the automated insulin delivery system is approved: connected insulin management system v1 (late 2016), a connected pen (2017), a connected insulin management system v2 (late 2017), and the aforementioned automated type 1 diabetes management system (late 2018). Mr. Brewer did not dive into what these products would entail or the certainty of developing them, but we assume they would leverage the Bigfoot assets and bring them to market in advance of the PMA.

Presumably the connected insulin management system would use the Bigfoot setup described above, but without the pump automation component – still a very cool and highly differentiated smartphone-enabled pump. This slide was skipped over very quickly, and we assume additional funds might be needed to bring these interim products to market. A slide footnote stated, “Connected pen contemplated through acquisition of existing tech, currently unbudgeted.”

We’re not sure which connected pen player(s) Bigfoot could acquire (Companion Medical?), but its automation software could presumably port over to MDI and make open loop a lot easier, smarter, and safer with some helpful insulin dosing titration.

Acquiring Asante’s assets at a serious discount was a tremendous win for Bigfoot, who now has a market-ready pump with some strong business and design advantages: prefilled Humalog cartridges with auto-priming (no air bubbles + faster set changes + simplicity); the most sensitive occlusion sensor on the market (could be incorporated into the closed-loop algorithm); lower upfront hardware cost (better for the subscription model); no need to build its own pump or deal with another partner; and a modular design that can easily facilitate controller upgrades.

“These design choices seem obvious if you have the right vision for who the customer is. If customer is the doctor, that leads to a different design than a real person who is not skilled in medical terminology and not well trained. If you are talking about a normal person, you need to design like Apple designs...We approach this from the standpoint of improved quality of life. If you start from the customer, you get a very different solution.”

TIMING

Mr. Brewer shared the most specific timeline ever, with a pivotal study now pushed back to 1H17 (previously it was expected to start by the “end of 2016”), an FDA submission by the end of 2017, and a commercial launch by the end of 2018. Bigfoot is in the process of filing an IDE and plans to move into an in-clinic study in the second quarter of this year. A hotel study will follow later this year, per the FDA artificial pancreas guidance for a stepwise approach. The pivotal is expected to be three months and a few hundred patients (for context, the MiniMed 670G pivotal is single-arm, three months, 150 patients, wrapping up this May).

Bigfoot’s pivotal study will include a broad spectrum of type 1s, not just experienced pump users. This is an obvious choice – given the company’s goal to appeal widely to type 1s– though we were glad to see this commitment articulated. The Bionic Pancreas team has talked similarly about enrolling a wide spectrum of type 1s. Certainly, it will be a disappointment if automated insulin delivery only appeals to experienced pump and CGM users – that would mean the cost is not low enough, the burden is too high, or the value isn’t high enough for payers, providers, and patients. Bigfoot seems focused on attacking those potential pitfalls.

Bigfoot will approach its pivotal study with functional claims to secure approval. Early discussions with payers have suggested that clinical outcomes of value can be proved in pilots. This is a win for the startup, who can get the product approved faster and demonstrate through pilots that it saves the system costs. The obvious outcomes are reductions in hospitalizations (severe hypoglycemia, DKA), which would be expensive and time-consuming to prove in a pivotal study.

FUNDRAISING, BUSINESS MODEL, COMPANY BACKGROUND

Bigfoot has raised $12 million to date, and Mr. Brewer believes a total of $80 million is needed to bring the company’s planned product pipeline to market. That’s an impressively low sum for a PMA product and potential interim products. The key, of course, is that Bigfoot is aggregating existing devices (Asante pump, Dexcom CGM, smartphone) and building software to maximize them.

Bigfoot is currently raising an $18 million round of Series A financing. This is expected to fund a 510(k) submission of the connected system (no automation) and start the pivotal trial.

A $20-$30 million Series B round would fund the 510(k) clearance, help complete the pivotal trial, and fund the PMA submission of the automated system.

An $18.5-$28.5 million Series C round would help fund the PMA approval and presumably commercialization.

Bigfoot will pursue a monthly subscription service model for its automated insulin delivery system. Patients would get one prescription and have one co-pay for the entire system (pump, sensors, app, BGM). We love the idea of this model, since it reduces the patient and prescriber hassles associated with all the pieces of automated insulin delivery. Management described it as “wellness as a service” and “more than just a device, Bigfoot provides a complete service.”

Bigfoot’s subscription service model will save payers money over the traditional economics of durable medical equipment.“Pumps add costs to the system. They are a terrible investment for payers.” Management described the ridiculous economics of pumps today, which don’t make sense for payers: a large upfront cost (e.g., $5,000) amortized over a four year period. If patients move payers, that money is lost! Plus, pumps are paid for regardless of the outcomes they produce. Bigfoot plans to attack both with a subscription service model contingent on outcomes.

Adding up the cost of a sensor enabled pump and all the associated supplies, Bigfoot believes the DME model costs the system over $800 per month (before insulin). “Selling DME is terrible for payers. It rips them off.” Bigfoot plans to be far cheaper than the current DME model, though at what monthly subscription price it will sell the system remains unclear. Could it be $200 per month? $400 per month? What will patients’ co-pay be? And will this require individual payer contracts?

“We’re meeting with payers already. Payers want a service model and a bundling approach.” This also meansBigfoot’s revenue will depend on system performance and outcomes – if patients abandon the system, Bigfoot will have to eat the cost of that patients’ devices. This value-based system is what many have talked about in medical devices (particularly Medtronic and Dexcom), and was a founding principle of the company dating back to our interview last February. We’re glad to see Bigfoot thinking differently about the business model, though it will be a challenge – pumps are not exactly a profitable business, so reducing the cost is a tall order!

What payers find compelling is preventing hospitalizations, and Bigfoot plans to demonstrate that through pilots. Payers have told Bigfoot that real-world data demonstrating reductions in hospitalizations is key – not RCT data. This is a major win for the startup, who won’t have to fund a large pre-market RCT to show a reduction in severe hypoglycemia or DKA hospitalizations to obtain reimbursement.

“This is a simple solution that will play in the healthcare system we have, not the one we want.” In an ideal world, providers would have plenty of time to train patients on complicated systems. But many people get care from PCPs – Bigfoot wants to make the system easy enough to prescribe in this environment.

“I see us an integrator and a software company.” Mr. Brewer made it clear that Bigfoot is not just a pump company. It is knee deep in standards, apps, and cloud services – these are not areas of expertise for traditional pump companies.

“There is no technical risk. It’s not a question of does it work, it’s how to turn it into a business.” Mr. Brewer has strong confidence in the company’s all-star team to figure out the algorithm and product design – and it’s hard to argue with him, with co-founders Lane Desborough and Bryan Mazlish on board. The bigger risks are the business model, regulatory, clinical outcomes, and payer environment. Can Bigfoot provide better outcomes at a lower cost in an industry (pumps) that has a poor track record of profitability?

Bigfoot has a “Blue Ocean” strategy: targeting the vast majority of patients not on CGM or a pump.The company estimates MDI users at 1 million in the US and 2.2 million in the combined EU5, Canada, and Australia. In the US, Bigfoot estimates 1.5 million US type 1s, with 460,000 US pumpers, 180,000 CGM users, and 100,000 pump+CGM users. On top of all this is a declining number of endocrinologists and a growing number of patients seen in primary care: key components of Bigfoot’s simple-to-prescribe and easy-to-train product.

Bigfoot estimates the annual costs of type 1 diabetes (care + adverse outcomes) at $30 billion in the US (1.5 million patients) and $45 billion (2.5 million patients) in the EU5, Australia, and Canada. This is the most specific estimate of type 1 diabetes we have ever seen. The source for these estimates was too small and shown too fast to read.

Dexcom

Kevin Sayer (CEO, Dexcom, San Diego, CA)

Dexcom CEO Kevin Sayer headlined his talk with the customary 4Q15 revenue pre-announcement: estimated revenue was ~$129 million, a striking ~23% sequential rise from record-high 3Q15 revenue, and a 53% year-over-year gain on a very tough comparison to a blowout 4Q14. Estimated full-year revenue came in at ~$400 million, rising 54% YOY from 2014 and smashing the updated $350-$375 million guidance and original $340-$360 million guidance issued at JPM 2015. Mr. Sayer said the G5 launch has been a “huge hit,” and “people love not carrying the receiver” (see diaTribe’s test drive). Management also disclosed the estimated global patient base for the first time in over a year: ~140,000-150,000 as of December 31, 2015, with an estimated 75%-80% in the US (~113,000) and ~20%-25% (~33,000) outside the United States. On guidance, Dexcom expects 2016 revenue in the range of $540 million-$565 million (35%-41% growth YOY). Notably, spending this year will include a major ~$40 million investment on several key initiatives: the next-gen CGM partnership with Verily (Google Life Sciences – the largest spend), increased manufacturing capacity (a second factory in Arizona), an “advanced data platform, and international expansion. There were no major pipeline updates, though Dexcom now expects to launch the new insertion system (“one button push, you don’t feel it”), smaller G5 transmitter, and new receiver in “late 2016 or early 2017” (slightly behind the 3Q15 guidance to launch these products in 2H16). Dexcom is still in regular discussions with FDA to obtain an insulin-dosing claim, though management “would love get it done before 2016 is over.” Remarks positioned it as a competitive barrier to entry for the first time: “We will undoubtedly be the first company to have this label. And we want to set the bar high. You’ve got to have a sensor that performs as well as ours does.” See below for more details on the business and pipeline, including new commentary on the Verily partnership, automated insulin delivery, G6, Medicare coverage, and FreeStyle Libre. This company continues to fire on all cylinders – topline revenue, bottom line profitability, pipeline, and commercial execution. Can it sustain the momentum in 2016 and beyond?

Dexcom reported estimated 4Q15 revenue of ~$129 million, a strong ~23% sequential rise from record-high 3Q15 revenue, and a 53% year-over-year gain on a very tough comparison to a blowout 4Q14. Estimated full-year revenue was ~$400 million, rising 54% YOY from 2014 and smashing the updated $350-$375 million guidance (which was increased from the original $340-$360 million guidance issued at JPM 2015). This now marks 13 straight quarters of 49%+ YOY growth for Dexcom since the launch of G4 in late 2012. Talk about serious business and pipeline execution. Mr. Sayer put the growth into perspective quite well: in 2011, Dexcom’s full-year revenue was 40 million, meaning sales have increased 10-fold in five years.

Dexcom’s estimated global patient base was ~140,000-150,000 as of December 31, 2015, with an estimated 75%-80% in the US (~113,000) and 20%-25% (~33,000) residing outside the United States. This represents an ~60% rise from ~90,000 patients as of the JPM 2015 update (when management reported ~50% patient base growth in 2014). Assuming 1.5 million type 1s in the US, that puts Dexcom’s CGM penetration in type 1 at ~8%, and total CGM penetration in type 1 in the ~10-15% range. Management said international patients buy fewer sensors and purchase less frequently than US patients – the lack of CGM reimbursement is still forcing many EU patients to pay out of pocket.

Management expects 2016 revenue in the range of $540 million-$565 million (35%-41% growth YOY), with a seasonal 15% sequential decline expected from 4Q15 to 1Q16. Obviously as Dexcom’s base of sales grows, it cannot maintain 50%+ YOY growth; analysts in the room seemed to agree that the growth expectation for next year was very reasonable.

Dexcom expects increases in cash-based net income in 2016 (improved profitability), though management plans to invest ~$40 million on several key infrastructure and pipeline initiatives:

the partnership with Verily [Google Life Sciences] “to really change the face of CGM” and penetrate into type 2 (the biggest expense);

increased manufacturing capacity (a second US factory in Arizona with more automation);

an “advanced data platform” (with millions of G5 data points flowing in every day, Dexcom needs to analyze it and do something valuable with it);

international expansion (reimbursement is “getting close” in several countries, and Dexcom plans to establish a European headquarters; the company has generated all of its International revenue with just four people.

Dexcom now expects to launch the new insertion system (“one button push, you don’t feel it”), smaller G5 transmitter, and new receiver in “late 2016 or early 2017.” This timing is slightly behind the 3Q15 guidance to launch these products in 2H16. These are major operational and pipeline undertakings for Dexcom – the hardware improvements are lower cost and will offer a better patient experience, but also require a major manufacturing overhaul.

Mr. Sayer was enthusiastic about the Verily [Google Life Sciences] partnership, noting strong synergies as the two companies seek to develop a flexible, disposable, bandage-like, 10-14-day CGM the size of a penny. In his view, the biggest obstacle is not technology, but cost. Mr. Sayer said both companies are teaching each other – for example, the original CGM patch Google showed did not have enough processing power for CGM data, nor did it have a Bluetooth radio. On the other hand, the Verily team is teaching Dexcom to think outside of their traditional type 1 perspective – e.g., non-insulin-using type 2s don’t need a sensor as robust as the G4/G5. That perspective could enable tradeoffs on product form factor that could make it smaller and less expensive. Mr. Sayer is confident that the pieces will come together from a technology perspective. The bigger concern is cost – Dexcom has cost targets to meet on the insertion and sensor, and Google has targets on the electronics. We would love to know what the target price is! Is it $10 per sensor? $20 per sensor?

Regarding timing of the Verily partnership, management said that it “will take five years to get there” (i.e., flexible, low-cost, bandage-like, disposable CGM sensor/transmitter the size of a penny to be worn on the body for 10-14 days). When the initial partnership was announced last August, the first product was expected to be commercialized in two to three years, with a follow-on product to be commercialized within five years. We assume Mr. Sayer’s five-year comment referred to the follow-on product, but are not positive.

Based on today’s commentary, it does sound like the Verily sensor will have Bluetooth connectivity, but will probably be less robust and full-featured than Dexcom’s current type 1-focused G4/G5. Management said the portfolio may see a divergence once the Verily product launches: the core type 1 product with a premium price and more features (e.g., G5, G6, and beyond), and the simpler, low-cost type 2 product with Verily. This was consistent with remarks upon the partnership’s announcement last August, though at the time, we were unsure about accuracy or connectivity. We assume the Verily product will be factory calibrated – given the type 2 audience – but are not sure.

Dexcom is still in regular discussions with FDA to obtain an insulin-dosing claim. Management “would love get it done before 2016 is over.” Remarks positioned it as a competitive barrier to entry for the first time: “We will undoubtedly be the first company to have this label. And we want to set the bar high. You’ve got to have a sensor that performs as well as ours does.” This is a smart move against Abbott’s FreeStyle Libre, which is slightly less accurate than G4/G5 (MARD ~11% vs. 9.0%), but of course adds factory calibration and 14-day wear. An inability to obtain a dosing claim would definitely hurt FreeStyle Libre’s compelling “no fingersticks” marketing in the US. Dexcom-FDA discussions still center on what data needs to be collected pre- and post-market to enable the label claim. But in new news, management said discussions also include “patient training,” and as the two parties keep jumping over hurdles, others keep coming up. Management said the dosing claim is “not a simple filing” (e.g., like a new sensor) – “This is more of a process. We’re writing the book on our industry and what it’s going to look like. We’re being very thoughtful.” In the 2Q15 call, a dosing claim was expected in 2016, while the 3Q15 call did not provide a timeline.

Connected to the dosing claim, management said Medicare coverage “might” come in 2017 (“a couple years away”). This has been long-awaited and it will be an amazing advocacy and regulatory victory to get this in motion once a dosing claim is approved. CEO Kevin Sayer did not sound highly optimistic about the bills in Congress.

G6 has been delayed in anticipation of the insulin dosing claim. In the meantime, Dexcom might proceed with the trials, targeting one calibration per day and 10-day wear. In the 2Q15 call, management expected to begin a G6 pre-pivotal study in late 2015, with a pivotal study to shortly follow, an FDA submission in early 2016, and launch in early 2017. It does not sound like any G6 trials have commenced, and we’ll look for more color and timing on the 4Q15 call in February.

Management was pressed in Q&A on FreeStyle Libre, expressing confidence it is not having an impact on Dexcom’s uptake in Europe. Interestingly, management noted that Dexcom’s G5 label in Europe has a stronger dosing claim than FreeStyle Libre (see below). We’re not sure this is really driving patients to choose one system over another – Abbott can still heavily market “no fingersticks” – but it was an interesting point. Otherwise, management reminded analysts that FreeStyle Libre is not a CGM, though Abbott “has done some things really well” (e.g., cost, factory calibration, on-body form factor, disposable). After another pressing question on FreeStyle Libre’s cost advantage, management acknowledged that if FreeStyle Libre is “good enough” for patients out there, Dexcom “can follow.” We look forward to the competition – many patients are going to benefit from better products from both companies!

Abbott EU Label: “The FreeStyle Libre Flash Glucose Monitoring System is indicated for measuring interstitial fluid glucose levels in adults aged 18 years and older. It is designed to replace blood glucose testing in the self-management of diabetes with the exceptions listed below” (rapidly changing glucose levels, hypoglycemia, if symptoms do not match).

Management said its insulin pump partners are “moving as aggressively as they can” on G5, G6, and artificial pancreas integration. Management called out Bigfoot Biomedical for thinking differently about automated insulin delivery. Today’s remarks reiterated Dexcom’s commitment to enabling automated insulin delivery, and Mr. Pacelli said it has challenged its partners to “not just follow Medtronic, but to come out with something competitively better than Medtronic” (1Q15 was the first time we heard this). Some of these novel approaches, said Mr. Pacelli, are more “software driven,” while others are more “hardware driven.” Mr. Pacelli called out Bigfoot Biomedical, who is “starting fresh” and approaching the problem differently – “Everybody is carrying a super computer in their pocket: a phone. Why replicate that into another product?” To what extent Bigfoot will leverage smartphones is unclear, but it confirms comments Jeffrey Brewer made at ADA 2015. We’ll see a Bigfoot demo tomorrow for the first time, which should give more color on the approach. “The problem” startup companies like Bigfoot have, said Mr. Pacelli, is “lack of a commercial infrastructure.” We wonder if Dexcom would help co-promote artificial pancreas products, or perhaps aid in other ways.

EVP Steve Pacelli refrained from commenting on the plans to accelerate the MiniMed 670G (see our Day #1 report), though he did point out that Medtronic has not presented any data on the next-gen sensor. We have heard anecdotally that Enlite 3 is better than the original Enlite (see our ATTD 2015 coverage: MARD: 11% vs. YSI; MARD: 13% vs. fingersticks at camp).

Dexcom is also considering CGM-enabled decision support for patients on MDI. The company is evaluating intelligent pens that transmit insulin data to the phone, and combined with CGM data, algorithms could give dosing advice (Mr. Pacelli dubbed this, “a poor man’s artificial pancreas”). Such an approach would be much lower cost than an artificial pancreas, but provide patients with valuable behavior and decision support tools.

“DME is a tough business. We need this to go to the drug store.” Reiterating comments from the past few calls, management expressed a strong desire to move CGM reimbursement to pharmacy distribution. “With a $129 million quarter, I get emails from someone who is unhappy about the time spent on the phone. Almost every time, I can take it back to a complicated insurance issue where Dexcom was negotiating on behalf of the patient. We need patients to go to the drug store instead.” As of the 3Q15 call, the goal was to move 70% of the business to pharmacy benefits as the primarily reimbursement source over a three-year period.

In 2H16, Dexcom still expects early data from the DiaMond study (n=338, 24 months, testing CGM in MDI users) and European reimbursement studies. These trials are critical to show the therapeutic and cost benefits of full-time CGM use regardless of insulin delivery method. Dexcom has always fought an uphill battle with some HCPs, as many prescribe pumps first or suggest CGM to those only on pumps.

CEO Kevin Sayer pointed out AACE/ACE’s strong endorsement of CGM in type 1 and type 2 following the 2014 Consensus Conference on Glucose Monitoring: “CGM is recommended in all patients with type 1 diabetes and should be available to all type 2 diabetes on multiple insulin injections, basal insulin, or sulfonylureas. CGM should also be used in all patients who are at risk for hypoglycemia and/or have hypoglycemia unawareness” (Grunberger et al., Endocrine Practice 2015). Our coverage is here.

Insulet

Patrick Sullivan (CEO, Insulet, Billerica, MA)

Confident Insulet CEO Patrick Sullivan largely reiterated recent quarterly calls in his standing-room-only presentation, though Q&A shared a notable commitment to prioritize mobile app development, with potential applications to the artificial pancreas. Management excitedly highlighted the “best-in-class” Glooko data management partnership announced last week (early feedback has been excellent), and Chief Commercial Officer Shacey Petrovic shared future “Digital Insulet” plans in Q&A: (i) launch of a non-regulated Insulet app in 1H16 (importing data from Glooko, reordering pods, training, help); (ii) a 2016 FDA 510(k) submission of the next-gen PDM with Bluetooth and a paired Insulet app that integrates Dexcom G5 CGM data (approval expected in late 2016-early 2017, slightly behind the 3Q15 plan to firmly launch in 2016); and (iii) building Bluetooth directly into the pod for the artificial pancreas, which could even enable dosing from the phone (still under discussion, and a backup device might be required). More color and timelines on the AP program are expected in the 4Q call in February, though we’re glad to hear the sustained commitment – a mobile system would differentiate Insulet from Medtronic’s MiniMed 670G (poised to be first to market), and keep it competitive with a potential mobile offering from Bigfoot. Management was also excited about yesterday’s expanded partnership with Lilly to develop a Humalog U200-compatible OmniPod handheld, building on the existing U500 partnership (clinical trial to complete in December). Ms. Petrovic said the U200 handheld has a two or three-year development cycle. Today’s talk did not provide any Q4 revenue pre-announcement or a specific patient base number (roughly 60,000-70,000 US patients, based on what was said today), though one metric caught our eye: >50% of patients who choose OmniPod would NOT have otherwise switched to a pump. Combined with ~70% of Insulet patients still coming from MDI, there should be lots of room for Insulet to grow the market. Mr. Sullivan concluded that he is “even more excited” to be at Insulet than when he joined 15 months ago, and despite quality and inventory issues in 2015, “the company is performing extraordinarily well.” As we understand it, Insulet is considering an Investor Day to be held sometime in 2016; we hope to hear more on the February call. More details below on company strategy, expansion in 2016 in Europe, pipeline, marketing, and profitability.

Insulet estimates it has ~4% market share of ~1.7 million type 1s in the US, meaning its US installed base is roughly 70,000 patients. [Note: Insulet only provided the 4% and 1.7 million numbers today; a patient base number is expected on the Q4 call.] Management estimates one-third of US type 1s are using a pump – despite multiple pump companies growing their businesses over the past few years, this number has not seemed to change much. These metrics translate to a ~12% US pump market share for Insulet, which sounds about right based on revenue.

Insulet currently has 70 US territories (a 40% expansion in 2015) and 150 field sales reps. Each territory includes a territory manager and one clinical sales manager (CDE by training).

OmniPod launches in 2016 with partner Ypsomed are expected in Denmark, France, Finland, Belgium, and Luxembourg. The OmniPod is currently sold in the US, Canada, and 10 EU countries. “Future markets” include Poland, Spain, China, Saudi Arabia, UAE, Qatar, and Australia – there was no timing attached, but we assume the European launches are much nearer term and launches like China are more mid-term.

Over time, Insulet will prioritize functionality in its future mobile app, with less functionality in the handheld itself. This move makes sense, as the phone offers more customization, a better user experience, stronger use of the data, easier product updates, and more. The one downside to this strategy is it may isolate some patients less interested in phone integration. Even for the Dexcom G5, we know of many patients who continue to use the receiver instead of the phone app. Still, fewer features in the PDM could also improve the cost profile of the handheld, a key differentiator.

An “important slide” highlighted Insulet’s four key R&D areas to leverage the OmniPod “platform technology.” It was notable to see the new Glooko partnership (only announced last week) in one of the four spots – a clear testament to management’s confidence in the partnership.

Concentrated insulins for type 1 diabetes and type 2 diabetes. This now spans Lilly’s U500 insulin and U200 Humalog. Management estimates these products will double Insulet’s current addressable market. As a reminder, the OmniPod can hold 200 units, not enough capacity for those requiring high doses of insulin (the leader is Tandem’s 480-unit t:flex).

Glooko: Announced last week, the partnership significantly improves OmniPod data management for physicians and patients, integrating OmniPod, BGM, CGM, and activity data. In addition to Glooko’s patient-facing mobile app and web dashboard, Glooko provides clinics with a downloading kiosk tablet. Insulet is making Glooko free nationwide for OmniPod patients and prescribing clinicians. Patients on Android can download their OmniPod directly onto the Glooko mobile app; those using iPhone can use the web dashboard. Once Insulet’s next-gen Bluetooth PDM is out, we assume the data will go directly into the Glooko app.

CGM integration and artificial pancreas: Insulet continues to develop its next-gen Bluetooth-enabled OmniPod, with submission expected this year and approval by end of 2016 or early 2017 (slightly behind the 3Q15 plan to firmly launch it by end of 2016). The PDM will launch with an Insulet app to display OmniPod pump and Dexcom CGM data. Further down the line, Insulet may build Bluetooth into the pod itself, offering potential for closed-loop dosing from a smartphone. That would be compelling artificial pancreas product, assuming the FDA is willing to approve an algorithm solely running on a standard smartphone. Management said a “backup device” may be needed, which sounds pretty likely to us – even Dexcom’s G5 required a receiver to be sold, even if patients don’t use it.

Drug delivery: Management’s excitement remains sky high on this business vertical, which got as much airtime as the OmniPod business in prepared remarks. Consistent with prior quarterly calls, Insulet has several agreements in place, but it will take ~3-5 years to fully launch any of them (Amgen took five years from concept to launch).

JP Morgan Analyst Mike Weinstein pressed management on the path to profitability in Q&A, though commentary largely sidestepped the question. The new management team was willing to take some hits to profitability last year, as investment were needed to improve product quality. We see these as worthwhile for patient safety and confidence, though Mr. Weinstein had broader concerns – is the current manufacturing process and the Ypsomed distribution partnership (which has sub-30% margins) hindering profitability? Management also didn’t address the profitability of the Neighborhood Diabetes business, which certainly reduces gross margins. Profitability is obviously a goal, though we’re glad to see the team making major investments in R&D – these will be key to stay competitive in the highly dynamic pump market.

Mr. Sullivan still hopes Insulet can be a $1 billion+ company, though he suggested it will take five to six years (~2020-2021). In his remarks at JPM 2015, he hoped this could happen by 2019. Perhaps the upside on drug delivery will take longer than expected to be realized.

Mr. Sullivan’s prepared remarks echoed recent commentary on the company’s strategy: expanding marketing efforts to focus on physicians and payers (vs. just patients alone); compiling and communicating clinical data; continued optimism for the future drug delivery business (years away from significant revenue, but a whole section of the presentation); and full installation of an experienced senior management team (many of whom have worked together previously). More specifics can be found in our 2Q15 and 3Q15 coverage.

J&J – Animas/LifeScan

Alex Gorsky (CEO, J&J, New Brunswick, NJ))

J&J announced that it has received FDA approval for the pediatric indication of the Animas Vibe integrated with Dexcom G4; the approval goes down to age two, the youngest available for a sensor-augmented pump in the US. The excellent news bodes well for J&J as it looks to stay ahead of the other two most recently launched sensor-integrated pumps in the US: Medtronic’s MiniMed 530G (16 years and older) and the Tandem t:slim G4 (12 years and older). This is a competitive advantage for J&J and a great new option for young patients – less hassle to get on CGM! – though there are lots of factors for parents and young patients to weigh (see the pros and cons below). It was certainly clear during today’s breakout session, however, that internal optimism is high. We heard both CEO Mr. Alex Gorsky and Group Worldwide Chairman Ms. Sandi Peterson (who oversees J&J’s Diabetes Solutions business) allude to the approval, and there seems to be real belief that Vibe’s success can help right some of the business’s financial challenges. Disappointingly, management did not comment on the closed-loop (termed a priority at AACE 2015) or plans to launch the Calibra Finesse bolus-only insulin delivery patch device this year. Ms. Peterson did allude to confidence in the future of the BGM business – we were a bit surprised by this characterization given the segment’s recent performance - and we dive into our thoughts on that and more in our detailed write-up below.

The lower age indication for the Vibe expands the potential market size, but also brings lots of tradeoffs and tough choices for patients (not a bad thing!). Most important for parents and young patients, the Animas Vibe forces a choice between standalone G5 CGM with remote monitoring vs. the convenience of the G4-integrated Vibe. On the user interface front, the t:slim G4 interface is a stronger option than the Vibe for Dexcom users, something younger patients might particularly appreciate. On the other hand, the Vibe is waterproof, a feature neither the t:slim G4 nor MiniMed 530G can boast. Tandem expects to further reduce its age indication to six or seven years old in 2016, bringing a more competitive offering vs. the Vibe. As a reminder, neither the Vibe nor t:slim G4 have Dexcom’s latest Software 505 algorithm (G4AP). Both companies are presumably working on G5 integration, though no specific timing has ever been announced.

J&J was silent on its Calibra Finesse bolus-only insulin delivery patch device; guidance in 2Q15 called for a Finesse launch in 2016, and we hope that has not changed. Notably, J&J is recruiting for a 24-week clinical trial (n=312) of the device that will randomize type 2 diabetes patients not achieving glycemic targets (A1c 7.5-10%) to either Finesse or the Novo Nordisk FlexPen to initiate bolus insulin therapy. The primary endpoint is A1c at 24 weeks, with secondary endpoints that include time-in-range (YES!) and treatment satisfaction. Primary completion is slated for December 2016.

Management also did not comment on J&J’s artificial pancreas project, which has moved at a glacial pace since signing its partnership with JDRF in 2010. The company has said it is working on it, though at what pace and how it will compare to Medtronic MiniMed 670G and others is a big question.

Other relevant commentary included remarks on pricing pressure in the BGM business though management remains “very confident in the future.” It was encouraging to hear the commitment to the challenging BGM area, though the pricing pressures don’t seem to be going anywhere – can J&J innovate its way to better sales? If so, what will carry the business going forward? We did find it a bit disconcerting to hear Ms. Peterson allude to “lapping” pricing pressures that have hampered the business to date. It’s true that competitive bidding has anniversaried (it began July 2013), though at the same time, the business has seen nearly three straight years of YOY declines in the US (11 of the past 14 quarters).

Medtronic

Omar Ishrak (CEO, Medtronic, Minneapolis, MN)

Medtronic CEO Omar Ishrak enthusiastically highlighted plans to launch the MiniMed 670G hybrid closed loop system in the US in FY17 (by April 31, 2017, consistent with JPM 2015), but in major news, the 640G may not launch in the US beforehand. The company’s near-term pipeline slide (see below) did not show the 640G predictive suspend system, and in Q&A, management said the two products are actually running on roughly similar US launch timelines. Leapfrogging the 640G and instead launching the 670G makes strategic sense: the 640G has still not been submitted to the FDA and the 670G pivotal study will wrap up soon (May); a single 670G launch means one PMA submission and no hassle of upgrading early 640G adopters; and the marketing will be far stronger for a hybrid closed loop. Still, getting the 670G approved and launched by April 2017 means less than one year at FDA – possible but not a certainty, given a new sensor (Enlite 3) and the first commercial product to increase insulin delivery based on CGM values. Otherwise, the pipeline slide showed two other major timelines of note: launches of Guardian Connect with Enlite 3 (US) and iPro 3 (EU) by April 31, 2017 (FY17). We assume the former is Medtronic’s own standalone, Bluetooth-enabled CGM (first demoed at Health 2.0 in September 2014), a key answer to Dexcom’s G5 mobile. Outside of the pipeline, Mr. Ishrak reiterated the company’s plans to expand into type 2 diabetes (“we’re committed”), while a company-wide partnership slide showed the slew of diabetes collaborations. More details below!

Mr. Ishrak stated that the 670G will “come out a little earlier than we’ve talked about before,” and his optimism was crystal clear: “we are really excited about the early results” and “really excited about the prospects.” The important pipeline slide (below) had 39 company-wide pipeline products listed over the next few years, though only five were called out – the 670G was one of them. That’s a serious vote of confidence in the product, given that the diabetes division accounts for just ~6% of company sales. We’d note that the timeline is actually the same as shared at JPM 2015 (“FY17”), though perhaps the study and talks with FDA are progressing faster than expected.

The strategic decision to leapfrog the 640G and launch the 670G is sensible, all things considered. Assuming the products are running on similar expected launch timelines, the 670G provides more functionality (hypoglycemia AND hyperglycemia minimization), will bring stronger marketing than the 640G (“closed loop!”), and will presumably cut down the PMA submissions from two to one. Medtronic is ahead of anyone else planning to launch an automated insulin delivery device (see our latest competitive landscape), meaning the company will likely be first to market with either predictive suspend or hybrid closed loop. The one area of risk is the 670G might have a longer timeline at FDA than the 640G (it shuts off AND delivers insulin vs. just shutting off), though the device division has shown a serious willingness to approve groundbreaking products quickly (e.g., Dexcom G5 approved in six months). At DTM 2015, we learned that the FDA granted 670G pivotal study participants continued access and use of the device, a positive sign for the eventual PMA review. The 670G is pretty customizable, so those who only want to use predictive suspend can set it up to do so.

Guardian Connect with Enlite 3: the FY17 launch timeline (by April 31, 2017) is the first we’ve ever heard. The Bluetooth-enabled, standalone CGM device was demonstrated as “Guardian Mobile” in September 2014 at the Health 2.0 conference. The pivotal study was completed in August 2015, so we’ve been waiting for any updates on a submission or launch; the product was not mentioned in Medtronic’s December call. We see this as an answer to Dexcom’s standalone G5 and a bigger foray into MDI, as Medtronic’s real-time CGM requires a paired pump.

The pipeline slide brought the first ever mention of iPro 3 (EU), also expected to launch by April 31, 2017. We’re not sure what this professional CGM product adds, but assume it includes improved accuracy, better provider analytics, fewer necessary calibrations, longer wear time, or perhaps a different on-body form factor (e.g., more like FreeStyle Libre Pro).

“In diabetes, we’re looking at the broader market opportunity. We’re committed to moving towards type 2 while maintaining our presence in type 1.” This statement came on a slide showing Medtronic’s different business units, which in diabetes include intensive insulin management (type 1), non-intensive diabetes therapies (type 2 and prediabetes), and service and solutions. The past two quarterly calls have given the first breakouts for these divisions, with non-intensive diabetes therapies (type 2 and prediabetes) growing the fastest (60-100%, though from the lowest base).

Medtronic asks three questions for every business segment: Is there a line of sight to improving outcomes? What value does Medtronic add? Is Medtronic positioned to win?

A company-wide partnership slide showed the slew of diabetes collaborations that have come about in the past year: BD (infusion set launching around March-April), DreaMed Diabetes (closed-loop beyond 670G), Glooko (data integration launching in 1H16), Diabeter (generating revenue), and IBM Watson Health (hypoglycemia prediction app launching this summer). There was no commentary on any of them, though we appreciated hearing the three Medtronic metrics for any partnership or acquisition: minimal to no dilution to net earnings per share, clear financial proposition, and mid-teens risk-adjusted return hurdle.

Medtronic also announced a partnership with the Chengdu government today to locally manufacture and launch its next-gen insulin pumps (e.g., 640G, 670G) in China. Medtronic will partner with the Chengdu government to enable people with diabetes in Chengdu and the broader Sichuan province to access the new, locally produced technology with software displayed in Chinese language. The manufacturing facility is the second Medtronic plant announced in Chengdu over the past 18 months – the first for portable hemodialysis equipment was announced in August 2014. We’re glad to see public private partnerships of this nature and hope it can expand access to historically expensive diabetes technology.

We were very impressed by the team - we got to meet with Laura Stoltenberg who runs the type 2 business along with Alejandro Galindo who runs intensive diabetes management and were impressed with their ambition.

Questions and Answers

Q: In diabetes you mentioned the 670G; can you say more about that?

A: In the past, we’ve showed the 640G in that timeframe. The 640G is the same product in Europe, where insulin delivery is managed based on trending of glucose levels – the difference is it shuts off insulin, but doesn’t deliver it. The 670G is a fully closed loop system that can deliver insulin too. The early results are very encouraging, and we’re working with the FDA on zeroing in the trial process and approval process. This is close enough that perhaps instead of launching the 640G, we’ll focus resources on the 670G, which would come instead of the 640G. Or we may do it together; we haven’t fully decided yet. The 670G time frame is similar to the 640G right now.

mySugr

Kyle Rose (Country Manager, USA, mySugr, Vienna, Austria)

mySugr’s Mr. Kyle Rose provided Digital Health Showcase attendees an introduction to the company’s diabetes data logging app along with two updates on recent progress: (i) mySugr has now broken 500,000 cumulative users worldwide; and (ii) the company’s bolus calculator has launched in Europe to rave reviews – see below. As we understand it, the FDA filing for the bolus calculator has just begun and we’ve got our fingers crossed that things will proceed smoothly. Mr. Rose spoke at a relatively high level (this was to be expected given the audience) though it was terrific to see the reception he received – indeed, this team is one of the best at speaking in a language that resonates with patients (“We try to make diabetes less sucky”) and he leveraged that charisma well. We’ve said it before but we’ll say it again – we think highly of the team and hope to see it move into dosing guidance, advice, and recommendations in a bigger way moving forward. The app-based bolus calculator in particular is a serious market need for MDI users and we’re enthusiastic to see mySugr going down this route. We’re not alone either – check out some highlights from what EU users are saying:

@mdixon: “thank you for the calculator - this is a life changer in terms of speed of working out my doses. Thank you so much!”

@k_d85: “The guys @mysugr are turning what started as a logbook into an incredibly powerful diabetes management tool.”

@WolfieZero: “Have to say that the @mysugr app has been amazing keeping track of everything and is a joy to use. Probably done more tests than I need too!”

Roche

Roland Diggelmann (COO, Roche, Basel, Switzerland)

Roche COO Mr. Roland Diggelmann shared muted perspective on the company’s Diabetes Care business, but an update on plans to submit its novel CGM to regulatory authorities in the EU (“definitely” in 2016) and US (“definitely not” in 2016).The CE Marking timeline could represent a step back from previous guidance (to “launch” by the end of 2016), though with a near-term submission and speedy approval, year-end commercialization is still possible. New to us, it sounds like an EU pivotal trial is already underway, but Mr. Diggelman did not share any specifics (Is the trial recruiting? When is completion? What is the size, length, comparison, etc.). In the US, Mr. Diggelman alluded to a more stringent regulatory process slowing things down, though it does sound like stateside commercialization is on the radar. Indeed, it’s very encouraging to hear that Roche is pushing forward on CGM given how challenging the BGM business has been (see below). As sensors get more accurate, more connected, smaller, much cheaper, and factory calibrated, glucose monitoring might start to shift more meaningfully to sensors in the next decade. In that sense, Roche needs to move quickly on CGM to stay competitive in the crowded glucose monitoring landscape. However, Roche will have to be thoughtful about differentiating its offering from established players, and we certainly think there is an uphill battle ahead given the greater experience and next-gen innovation happening at Abbott (FreeStyle Libre), Dexcom (G5), and Medtronic (Enlite 3). What will set Roche’s CGM apart?

Commentary on the BGM business touched on: (i) the steep challenges in the US; (ii) the strength of the business in Latin America, Europe, and emerging markets; and (iii) the staunch commitment to this vertical. As expected, Mr. Diggelmann was quite guarded in discussing the US market – contextualizing Roche’s performance with the caveat that “all the largest companies are suffering” – but suggested that the business is trending in the right direction. International performance sounds like it remains strong and is driving positive margins for the business as a whole. This was good to hear though reminded us how significant the margins must have been before competitive bidding! Mr. Diggelman shared that the US market has lost ~80% of its strip sales since July 2013, though the redeeming quality for industry is that the number of patients in this market continues to grow. [Another question is whether the number of patients self-monitoring their blood glucose continues to grow; with more and more therapies that don’t cause hypoglycemia, plus tighter payer restrictions on strips, we wonder how much bigger this market is getting.] Ultimately, it sounds like BGM remains attractive to Roche, who is riding out the storm in the US. It does not sound like significant changes or reorganization are on the horizon, though significant BGM innovation may not be either.

Roche did not devote much time to its diabetes pharmaceutical pipeline, though CEO Mr. Alan Hippe did remark bluntly on declines for Lucentis (intravitreal ranibizumab) – “It was not really a fantastic year.” As in previous updates, he attributed weakness to increased competition for Lucentis in diabetic macular edema (DME) and age-related macular degeneration. He was “not that frustrated,” however, given the strong way Lucentis initially came out of the gate. Mr. Hippe also shared that expanded indications for Lucentis in ophthalmology will help sales long term. He commented both on Roche’s phase 2 port delivery system study for Lucentis in the treatment of ocular disease (“a challenging technology but I think we’re moving in the right direction”) and a study investigating Lucentis in wet age-related macular degeneration has been moved into phase 2. These solutions are still a ways down the line though it’s encouraging to see Roche advancing innovation in eye disease.

III. Obesity

Orexigen

Michael Narachi (CEO, Orexigen, La Jolla, CA)

Orexigen CEO Mr. Michael Narachi presented positive data from the Ignite Study, the company’s 2016 financial guidance, as well as a couple of additional smaller business updates, with a continued emphasis on plans to partner Contrave (naltrexone/bupropion extended-release). In the context of his confidence in Contrave’s product profile, Mr. Narachi presented data – new to us – from the open-label Ignite Study (ClinicalTrials.gov Identifier: NCT01764386), which demonstrated significant weight loss in a real world setting. Specifically, approximately 70% of the subjects completed at least four months of treatment, of which more than 66% lost ≥5% weight loss at week 16. We’d be even more interested to understand how many lost 10% or 15% of weight loss and how these individuals might be identified. In prepared remarks, we also learned of Orexigen’s 2016 financial guidance: the cash and marketable securities balance at the end of 2015 stands at ~$212 million and the company expects a cash inflow (including revenue, royalties, and partner derived income) of $40-$60 million. To provide context, this seems similar to slightly higher compared to 2015 which has totaled $37.5 million in the first three quarters – we will have to wait until Orexigen’s 4Q15 update to have a more concrete comparison. The financial guidance also stated that operating expenses will range between $105 million and $115 million. Regarding other business updates, Mr. Narachi said there was 52% reimbursement for Contrave – it did not characterize level of reimbursement, which would have been helpful (see below in Q&A). He briefly mentioned that the company has completed key steps for the addition of Sanofi as a second source product manufacturer. This is something we had not heard before – in our communication with the company, we learned that Orexigen is hoping to diversify its supplier base and secure global supply capabilities as it advances plans to distribute Contrave throughout the world. Management also noted during its JPM presentation that Orexigen will soon be exploring “consumer activation campaigns.” We’d love to hear more about this and hope that these are helpful to patients (there have been regulatory constraints related to other such efforts as we understand it). In addition, while ambiguous, we were glad to hear commentary on efforts to partner with academia to improve medical school education in the company’s breakout session. Similar to the company’s 3Q15 update, Mr. Narachi also devoted significant attention to Orexigen’s partnership strategies in Europe and rest-of-world markets, with a specific focus on why the European market especially has potential. In our eyes, while strengthened momentum with Contrave in the obesity market will be important to see, it’s a positive that Orexigen remains ambitious with further expansion and promotion plans – please see below for some more details and commentary in the Q&A. For more on Orexigen’s latest, please see our 3Q15 coverage of the company and check out our recent 2015-2016 reflections piece to understand our thoughts of how Orexigen fits within the larger obesity market.

Questions and Answers

Q: What is the category growth?

A: At the end of 2015, we saw a 10% YOY increase for the obesity market. We project a low double-digit growth for 2016. This will likely be a steady double-digit growth. The branded class is growing rapidly and we expect the class to continue to grow. Contrave is expected to continue to pick up share. Since people are not used to seasonal growth patterns, the class growth may not be well understood.

Q: Can you comment on payer reimbursement and uptake?

A: We had 52% overall reimbursement and it is steady. Historically, obesity is going to look different than other classes. We need to not only educate payers and get them to opt in, but we also need to educate patients and physicians.

Q: Will you focus on medical school education?

A: There are many centers that do not have obesity education. We’re trying to partner with academic leaders to achieve and improve this. We want to create training programs. Many leaders have commented on the need to focus in this area and we see a lot of interest on how to get it done.

Q: What is the strategy to expand into the EU?

A: There are internal targets on order and priority. Our priorities are on the bigger markets.

Q: Any expectations with sales in the US?

A: We expect them to improve over the next year and we will work on pharmacy savings programs.

Q: What are your thoughts on pricing in the EU? If it’s out of pocket, how much will patients have to pay?

A: I cannot speculate to this but there is a proportion who will be willing to pay out of pocket.

Q: Can you provide any color on your thoughts to expand consumer activation programs?

A: We’re looking to go out with small pilot programs to understand ROI, such as the recent unbranded campaign with Takeda. The motivation for physicians to treat obesity with medications is driven by complications but the doctors’ process has nothing to do with what motivates patients. Quality of life, self-esteem, etc. – those are the factors that drive patients. We need to understand patients and enable productive patient interactions. There is a lot of good thinking that is happening to activate consumers and we’ve also looked at multicultural motivators.

ReShape Medical

Richard Thompson (CEO, ReShape Medical, San Clemente, CA)

ReShape Medical CEO Mr. Richard Thompson noted during Q&A that the company’s Integrated Dual Balloon System will be a self-pay product for the “foreseeable future.” As a reminder, the ReShape Integrated Dual Balloon System is a non-surgical temporary balloon device for obesity treatment and was recently approved this past summer. When questioned about the product’s potential for reimbursement, Mr. Thompson highlighted that the device is a self-pay product (with costs ranging from $6,000 to $21,000) and will remain so for the foreseeable future, noting that ReShape will develop a reimbursement strategy “at some point.” This commentary again reminds us how young the obesity device market is and how far it seems from gaining reimbursement, as obesity pharmacotherapies continue to struggle to meet eye to eye with payers. With such high costs and low reimbursement potential, we see obesity devices remaining far from becoming a widespread treatment option for some time.

IV. Big Picture/Health Policy

23andMe

Andy Page (President, 23andMe, Mountain View, CA)

Personal genetic testing company 23andMe is expanding beyond its direct-to-consumer tests to research and drug discovery efforts. President Mr. Andy Page described how the company’s three business units – direct-to-consumer genetic testing, research services, and drug discovery – collaborate to advance its mission of helping people access, understand, and benefit from the human genome. On the genetic testing front, 23andMe was recently able to relaunch its product following FDA approval and the creation of a pathway to allow for approval of future carrier status reports that the company (or other companies) may develop. Management emphasized the accuracy and impressive user engagement with the product – trials demonstrated over 90% user comprehension and a survey aimed at investigating a link between a particular genotype and prostate cancer garnered an astounding 10,000+ responses in just 12 hours. Looking to the future, the company plans to expand the report types available through the 23andMe platform (we hope diabetes and obesity will eventually be included, though the research in this area is very preliminary) and hinted at expanding to other types of testing beyond genetic testing. 23andMe has also built a thriving research services business unit using the genotypic and phenotypic data it has gathered through its genetic tests and survey responses. While the company works with third-party groups as well, Mr. Page noted that 23andMe’s new drug discovery unit is its own largest client within research services. Headed by Genentech alumni Drs. Richard Scheller and Robert Gentleman, the drug discovery unit will develop new therapeutic targets based on “phenome-wide association studies (PheWAS),” which investigate the wide variety of phenotypes that may be associated with a particular genotype. Mr. Page shared that in the six months since its inception, the division has already identified several potential therapeutic targets. The company hopes to set up a wet lab for research in the Bay Area within the next year. The company has certainly grown up since its JPM 2013 showing and we’re excited to see 23andMe expand its business focus beyond personal genetic testing to new frontiers in precision medicine. See our recent interview with Dr. Anne Peters for more on how 23andMe and genetic testing could revolutionize diabetes care.

V. Keynote Addresses/Panel Discussions

Luncheon Keynote

A lunchtime panel discussion featured the impressive Dr. Susan Desmond-Hellmann (CEO, Bill & Melinda Gates Foundation), J&J CEO Alex Gorsky, JP Morgan CEO Jamie Dimon, and Fox News anchor Maria Bartiromo. The wide-ranging discussion touched on cost pressures, scientific innovation, the role of philanthropy, and more. We were particularly impressed with Dr. Desmond-Hellman, who emphasized profound tension she lives in each day: bringing cutting-edge science to those who need it most around the world. Her remarks reinforced the value of public-private partnerships in overcoming market failures – areas of high need where there simply isn’t enough investment. Her comments on polio were particularly striking – with the help of vaccine makers, the Gates Foundation has practically eliminated polio globally. We continue to wonder where such partnerships can move the needle in diabetes. What are the most important trials or pilots that could be funded with philanthropic dollars? Otherwise, cost was a major focus of remarks, headlined by Alex Gorsky’s remark on disparities in spending: “In China right now, the average healthcare spend is $400 per person. In the US, it’s $8,000-$9,000. What’s the right amount?” See our favorite quotes from this lunchtime discussion below.

“The most profound thing that strikes me is the quality of the science – the ability to benefit patients is better now than it has ever been. But I live in tension in profound ways every day with the Gates Foundation. How do we take great science and innovation and help people be healthier? The deal making is very exciting, but we want to bring deals that bring that science to the people who need it the most. We’re excited to be part of this ecosystem. You can see the kinds of deals we make, like this morning with Lodo Therapeutics. They are looking at microbes in mud and whether we can find new antibiotics. The world needs new antibiotics, and we can use our capital to drive deals from market failures. The more this is a healthy, science driven industry, the better.” – Dr. Susan Desmond-Hellmann

“In China right now, the average healthcare spend is $400 per person. In the US, it’s $8,000-$9,000. What’s the right answer? It’s probably not $400, but it’s also not $9,000. We as an industry have to change the models. Over the next few years, it needs to become outcomes-based, episode of care based.” – Alex Gorsky

“It’s remarkable that as we get better phones and tablets, the price comes down. In healthcare, almost uniquely, as we innovate the price goes up. What does it look like to innovate in a world of cost constraints?That isn’t the environment in the US. Increasingly as patients pay for their own healthcare, there will be more burden on families and consumers. It will become part of the next product profile.” – Dr. Susan Desmond-Hellmann

“We all want the same thing: a healthy world. Knowing that, but also knowing the pressures for shareholders, there are opportunity costs. [At the Gates Foundation], we want to use our capital to cover the risk. Two tools have worked really well. Tiered pricing has been great for issues like HIV – it works for something that affects both the rich and poor parts of the world. The other tool, volume guarantees, works when there is a large market for things like vaccines. We can guarantee a pharma company will sell 2 million doses with our capital. Where we really struggle, and where there is a tough market failure, is for things like Ebola. Nearly two years ago, when Ebola hit, it was not a rich world disease, and there were less than 2,000 cases. We didn’t have tool for that kind of market failure. Now we looking with colleagues to understand how can we be more ready next time.” – Dr. Susan Desmond-Hellmann

“Polio is a disease of poverty– we cannot reach kids with two very effective vaccines. This year, Nigeria, went an entire year free of polio. That is an enormous accomplishment. [Applause]” – Dr. Susan Desmond-Hellmann

“I have three metrics on my plate that will make this a great year. One is wiping polio off the globe. We’re down to two countries – Pakistan and Afghanistan. The second is to decrease again by half mortality in kids under five. Lots of companies are at this meeting, and we need great companies helping make affordable vaccines. The third is education – we have to increase the proportion of American high school students that are job or college ready. Those are my top three.” – Dr. Susan Desmond-Hellmann

“If we look at the macro issues, we’re living longer. The challenging thing is that costs more. The older you get, the consumption of healthcare increases by almost a factor of five. It’s daunting. How are we going to deal with that as a society? – Alex Gorsky

“This conference started in 1983: there were 20 companies presenting to 100 people. The combined market cap was $3 billion. Today there are 500 companies presenting to 10,000 people. The combined market cap is over $5 trillion. I’ve come every single year, and every year there are more and more people, more and more technology, more equipment, more pharma, huge innovation, and huge growth. The industry will be twice as big 10 years from now, and it will be very vibrant.” – Jamie Dimon

In a lively Panel Discussion on digital health, speakers expressed optimism for the seemingly inevitable fusion of the health and technology worlds, though noted that the medical industry still has a LOT to learn from Silicon Valley. “As Google and Apple get into healthcare, they have something very profound to teach us,” saidEvidation Health CEO Dr. Deborah Kilpatrick. “They know how to think of people as consumers of something in their daily lives, and that is not how we in healthcare have traditionally viewed patients.” Indeed! Grand Rounds CEO Mr. Owen Tripp echoed this sentiment, stating that tech giants will not only speed the process of innovation but will expedite the “17-year lag time” between a health technology’s development and adoption by physicians – yikes! [The stat is even more embarrassing relative to the technology world where it takes “18-24 months” for new software to be adopted by engineers!] Mr. Tripp advocated for simpler solutions that deliver instant gratification, suggesting rather provocatively that striving for “engagement” (which is too slow of a process) is actually the enemy. “I hope we can slay the word engagement,” he said. “What patients really want is a big red button they can smash when they are worried. If you give patients something that easy, then you’ll have your solution.” We’ve seen companies succeed at offering close-to “instantaneous” services (e.g. OneMedical’s online booking/appointment reminders, Walgreens’ online prescription filling service) though are not as sure that the solution is quite that simple. The digitization of health requires providing insight and customizing care in a scalable, cost-effective manner. Having a chronic disease is zero fun, and too much of digital health asks more of patients without offering much in return. That said, we can appreciate Mr. Tripp’s point –a solution lacking the automaticity and ease we have in tech (e.g., push a button, have a pizza delivered to your front door; open an app, get a ride in two minutes) may sit at the bottom of most patients’ sock drawers. That does not help anyone, and we left the discussion even more appreciative of the many, many factors – instantaneous, scalable, cost-effective, regulated, easy for patients, valuable for providers, insightful for payers, and on and on – that must be integrated in order to achieve the Holy Grail in digital health. No wonder it’s so difficult. For now, we wait.

In this wide-ranging discussion on the future of the FDA, diabetes was highlighted primarily as an area where there is reluctance to invest, particularly relative to specialty indications. Moderator Dr. Joseph Gulfo (Rothman Institute of Innovation & Entrepreneurship, Madison, NJ) remarked that at a similar panel at last year’s Biotech Showcase, he asked the audience whether they would rather invest in “gobbledy-gook syndrome” or diabetes if given the choice, and “everyone in the room picked gobbledy-gook syndrome.” He also noted that over 100 companies at this year’s conference are presenting on cancer, while he estimated that the number focused on diabetes would be in the single digits. Ms. Sara Radcliffe (California Life Sciences Association, South San Francisco, CA) concurred that FDA requirements for new diabetes drugs have made the area more daunting for investors, but she maintained that the incentives are still there for products that demonstrate real value. These comments are consistent with our sense that the bar for new therapies in diabetes (particularly type 2 diabetes) is rising ever higher. Assuming this environment continues, we would expect more companies to follow the lead of those like Ionis (formerly Isis) and target new drugs to very specific subsets of the diabetes patient population.

“It’s all about value. Who’s not going to invest in a great primary care drug that will make a big difference? In diabetes we went through a situation where the requirements around getting diabetes drugs approved has become so difficult that it has really impacted investment. Nonetheless, think about investing in drugs where you really have confidence that they can go in and tell the Agency how the drug should be used…Clearly to be able to invest in a product that will be widely used can be a great investment.” – Ms. Sara Radcliffe

“There are over 100 companies presenting on cancer. I bet if I searched diabetes it would be eight. It’s a huge problem. Last year I gave the audience a choice to invest in gobbledy-gook syndrome or diabetes and everyone in the room picked gobbledy-gook syndrome because there’s a marker. It’s a huge problem there and I don’t see it getting any better.” – Dr. Joseph Gulfo

“Bringing the patient voice into review and development sounds like a feel-good ask, but it’s really the one with the most potential to be a real paradigm shift. The FDA historically took the parental view that we know best and we don’t want patients to be misguided. It will take time, but we’ll see over the next five years that’s really going to change.” – Mr. David Fox

“[Duchenne muscular dystrophy] is one place where patient advocates were in even ahead of the companies. The parents of these kids were driving the train. Parent Project Muscular Dystrophy was one of the first groups to organize all the experts in the disease state to write their own guidance to the FDA that said here’s how we think you ought to move forward. That’s part of moving activity forward and empowering patient groups.” – Ms. Nancy Bradish Myers

“I’ll summarize the advice from the panel: Invest in companies with niche products. In 2014, 40% of all approved products were niche products. We predicted it would be higher in 2015 and it was 47%. I think it will go higher this year. Invest in companies with a good patient advocacy lobby. Make sure the companies have met with the FDA. Don’t accept a letter saying we’re doing what this other company did.” – Dr. Joseph Gulfo

Panel Discussion: 3 CEOs

A panel discussion at the nearby Health 2.0 Conference (down the street from JPM) featured interviews with two digital health startups: Livongo CEO Mr. Glen Tullman and Omada Health CEO Mr. Sean Duffy. Both spoke positively about the power of digital health to empower patients to better manage diabetes, though there were no specific product or business updates of note. This was understandable, as lingo had to stay high level for an audience interested broadly in digital health trends. We have summarized the most notable points of discussion below.

Mr. Tullman opened by discussing one of the fundamental ironies of healthcare: “Patients actually don’t want to be more engaged … They want a pacemaker model. Put it in and don’t worry about it!” He spoke to the need to equip patients with more automated tools that allow health to happen in the background while life happens in the foreground. He underscored that making data actionable for patients in near real-time is the ultimate goal at Livongo, removing the guesswork from diabetes and empowering patients. As he sees it, the quest to more easily access diabetes device data is not a question of ifbut how soon. Said Mr. Tullman: “I think the future is going to be rocky. I think there are going to be failures along the way. But ultimately, I think it’s extremely exciting where we are going to go.” The big questions for Livongo are whether it can innovate in an industry where startups often fail (glucose monitoring), where reimbursement is critical, where a connected product doesn’t equate with widespread success (e.g., iBGStar), and where continuous sensors are getting better and cheaper.

Mr. Duffy stated that the success of Omada Health’s digital Prevent program partially comes from delivering an experience that is “sticky socially”, mirroring relationships supported by in-person interventions. This reflects Omada’s drive to prioritize an engaging patient experience as the end goal and build functionality around it; psychosocial factors are a vital component of this experience, particularly in chronic disease management. When done effectively, the ROI of patient-centric design can be significant, though it is not the only factor in success. According to Mr. Duffy, Omada Health’s program has successfully prevented people from developing type 2 diabetes, and modeling shows that the price of the program is typically recovered in two to three years by reducing the medical costs associated with the disease. While many traditional healthcare companies tend to operate with the opposite frame of mind (e.g. ‘I want to make a device that delivers insulin’, not ‘I want to make an attractive device that patients have fun using’), the trend of thinking of the patient as the consumer is rapidly seeping into healthcare as it becomes increasingly connected with the technology world. In our view, this trend is a great sign for patient adoption of technology, as it should make devices more useful, stickier, and increase that “I-can’t-live-without-it” mindset that characterizes so many consumer electronics. For more on Omada, see our coverage of its successful pilot with Humana in Medicare patients (November) and its $48 million in Series C financing (September).

A panel on “consumer genomics” offered a look at what individual access to genetic information might mean for the future of healthcare. CEO of personal genetic testing company 23andMe Ms. Anne Wojcicki pointed out that, currently, there is "not a single pharma company that has returned genetic information back to the patient.” She characterized precision medicine as a “turning point” toward a healthier population, especially for diseases like type 2 diabetes that involve a host of complex social contributing factors. Mr. Justin Kao, co-founder of personal genetics lab start-up Helix, emphasized the company’s mission of building tools to empower individuals to access their own genetic data. Dr. Christopher Mason (Weill Cornell Medical College, New York City, NY) suggested that the next generation of doctors will engage in personal genetic counseling training and will be able to interpret patients’ genomes to predict their risk for various diseases. He also views individual access to genetic data as a means to level the field, leading patients to work with doctors as colleagues. That said, Dr. Mason pointed to quality control as a potential barrier, noting that it is commonly the interpretation and not the technology that varies. Similarly, Mr. Ken Chahine (Ancestry.com, Provo, UT) emphasized the importance of educating consumers on optimizing use of this technology now that they have access to it at reasonable price points. We’re excited by the prospect of personal genetic testing reaching the mass market and look forward to seeing what this data might mean for individualized management of diabetes and other chronic diseases in the future – see our interview with Dr. Anne Peters for a tantalizing look at what may be possible on the horizon.